Two financial giants fight to profit from senior

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(MoneyWatch) COMMENTARY I see so much senior abuse in my practice that I'm almost numb to it, but this story made me downright angry. It's a story of two financial powerhouses, Ameriprise (AMP) and Fidelity & Guaranty Life, fighting over a senior's money and crying foul at each other when it looked like one would lose out to the other. That senior is Gene -- a 76 year-old man who came to the U.S. from China as a child and built the American Dream with his dad in the restaurant business. Together they ran a restaurant in Colorado Springs for a few decades. Gene loves to talk about his three children.

The free educational dinner

It's a storyline all too familiar to anyone who has followed the financial industry: Gene attended a "free educational dinner" and, eventually, the speaker, a woman claiming to be Gene's advocate, helped him complete the application for an equity indexed annuity with Fidelity & Guaranty Life Insurance Company, a $20 billion Baltimore-based financial firm (no connection to Fidelity Investments). Equity indexed annuities are complex contracts with an insurance company that offer a return tied to the stock market. They are often sold with the promise of stock market returns with no risk. In reality, they deliver little of the market return and lock up investors' money for years. If you want access to your money early, you get hit with surrender fees.

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Unfortunately, to buy the new annuity, Gene would have to cash in an existing $124,000 annuity he had bought from Ameriprise years ago, and pay a nearly $8,000 surrender charge to do so. Gene said the Fidelity & Guaranty agent was unconcerned about the surrender charge, as she said Fidelity & Guaranty was paying a bonus that would offset it. A key detail (which Gene said the agent left out) was the fact that the Ameriprise surrender penalty was in cash, while the Fidelity bonus is only in the form of a future promised payment stream at a rate set by the insurance company.

Now Ameriprise wasn't going to take the loss of business without a fight. Ameriprise gave Gene the telephone number to the Colorado Division of Securities. At about that time, a friend told me about Gene and I met with him. In my investigation, I was shocked to find out the Ameriprise surrender would have expired in less than four months. In other words, Gene would have been able to move the money to Fidelity & Guaranty without penalty by waiting a short time. Either the Fidelity agent didn't want to wait that long to make her sales commission or hadn't bothered to check to see when the surrender charge would expire. Neither possibility suggests she had Gene's best interest at heart.

As horrible as this seems, it's an all too common problem I see far more often than I'd like. Seniors are sold complex products with great promises by agents who convince them that they are acting as their advocates. In reality, I've found the agents generally don't understand the products yet sell them because they pay great commissions. I've written before about some of the tricks in equity indexed annuities.

Though the agent didn't return my call, I did follow up with Fidelity & Guaranty. A company spokesman objected to my calling the annuity illiquid, noting it was "100 percent liquid" under certain events, such as Gene going into a nursing home or being diagnosed with a terminal illness. I don't consider an investment to be 100 percent liquid unless you can turn it into cash immediately, for any reason, and without costs. When I asked why Fidelity wouldn't wait four months to let the $7,910 surrender expire, the spokesman responded by criticizing Ameriprise.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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