A Louisville-area consumer contacted the Better Business Bureau after receiving an envelope in the mail which contained only a “Business Reply” postcard about “2008 Important Elder Law Changes.” The consumer was asked to complete and mail the postcard to a PO Box in Riverhead, New York. The postcard had no information to indicate the name of a business, with the address on the card saying only that it was going to “Information Processing Office.”
Here is a picture of the postcard received by the local consumer:
The postcard asks the consumer to check one or more “areas of interest” and promises, “You may learn how to qualify without any cost under federal or state law” for benefits such as “Reduce or eliminate taxes on Social Security & Interest Income” or “Earn Double or Triple Interest on CD’s with no risk to principle balance.”
You might suspect that these promised benefits sound too good to be true. You would be right.
The Better Business Bureau's research has determined that this postcard is mailed out as a “Lead Strategies” program by develop sales leads for agents selling an annuity product to senior citizens. The financial products salespeople using these leads pay for having the postcards mailed to senior citizens, and expect about 2% of recipients of the postcard to provide the requested information. A publication promoting this leads strategy to these agents suggests that mailing 1,000 cards will produce 20 leads, which might result in 10 sales appointments, and says:
10 Appointments = Approx. 6 Sales = $150,000 in Annuity Premium @ 4% Commission = $6,000
Annuities are an insurance product. They can be good investments for some seniors. However, these are complex, long-term investments and it is important to do your homework carefully. Never be talked into investing in an annuity by a sales agent who doesn’t encourage you to take your time and research your options carefully before investing.
The Florida Department of Financial Services, which gets numerous questions about annuities from senior citizens living in that state, offers sound advice, saying:
- Find out the specifics of the particular annuity you are considering (variable or equity-indexed);
- Request a prospectus from the insurance company or from your financial professional, and read it carefully;
- Compare the benefits and costs of the annuity to other annuities and to other types of investments (stocks, bonds and mutual funds;
- Carefully assess financial goals - variable and equity index annuities are designed to be long-term investments to meet long term goals such as retirement;
- Equity-index annuities are complicated investment products that may contain several features that can affect your investment return. Make sure you understand how an equity indexed annuity computes its index-linked interest rate before you buy.
- Consult a tax adviser and consider all the tax consequences of purchasing an annuity, including the effect of annuity payments on your tax status in retirement.
- Ask the sales agent about the licenses and/or designations he or she holds, and what types of investment choices he or she can offer you;
- Ask about commissions, fees, penalties, surrender charges and any other associated costs. Get the figures in writing;
- Before you surrender an in-force investment to purchase a new product, call the company to find out if you will suffer a surrender charge, and if so, how much it will be. The cost of a transfer may outweigh any benefit of a new product;
- Beware of "bonus" interest rates, as they may be limited in duration and have strings attached, and sales pitches that claim you will "recoup" all penalties with higher returns;
- Take your time. High-pressure sales tactics will rush you into an unwise decision. A sound investment will be just as good tomorrow or next week;
- Document all transactions; and
- Remember, if it sounds too good to be true, it probably is.