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Part II Do you Know Where Your Parents’ Money Is?

Part II Do you Know Where Your Parents’ Money Is?

Last week I had a call from a lawyer friend and his wife. She was hot! She had just learned that her mother’s “banker” had convinced her to rollover her C.D.s into something that would pay more interest. She also recommended Mom sell some stocks that weren’t doing very well to buy more of this investment. The daughter had just learned that Mom now has all her savings in equity indexed annuities, tied up for ten years! The only way to get out of them was to pay a $40,000 surrender penalty–which was over 10% of her mother’s savings! They had complained to the bank, which had told them to pound sand, because Mom had thoroughly understood the transaction and had signed all the disclosure documents (more on the fallacy that “disclosure documents” actually do any good in a later post) and because these were not “securities”, they couldn’t file a FINRA arbitration or complain to a state or federal securities regulator.

I gave them some free legal advice, so I’m passing it on to you–but hoping you don’t need to save your Mom or Dad from being “income poor but annuity rich”. Here’s the advice: check to see if the “lady at the bank” is licensed to sell securities or not. Remember: she recommended Mom sell some stocks she owned to buy the annuity. She needs to have a securities license (a series 7) to recommend selling securities. If she is licensed, yes, a FINRA arbitration can be filed against her. If she’s licensed, she also has to “hang her shingle” under a licensed broker dealer, and that company (otherwise known as “the deep pocket”) can also be taken to the FINRA arbirtration. Yes, they could also complain to the state securities commission and the SEC.

On the other hand, if she isn’t licensed to sell securities,she has violated state and federal law by recommending the sale of securities without being registered. Kind of like the people who operate Ponzi schemes. This is a big deal AND the Bank is also liable for selling securities without a license.

The takeaway: look at both sides of the transaction. Even if the buy side was an equity indexed annuity, which is not a security, but rather an insurance product (even though they are always sold as “investments”) Mom had to sell some securities to buy it. Therefore, this was a securities transaction and was subject to the securities laws.

But, you ask, how can I make sure this doesn’t happen to my Mom or Dad? Do I have to accompany them even to the bank? Well, that’s a problem. Everyone wants to be in the investment business–banks, credit unions, tax preparers and insurance companies. That’s where the money is. Those annuities took 11% of Mom’s money to pay upfront commissions to the Bank and its employee. So, Mom spent $44,000 to give her $400,000 to an insurance company for ten years. Heads up: the long knives are everywhere now. Mom and Dad can even be unsuspecting prey at the Bank. If you learn that a nice banker found them something that will pay them more interest than a C.D., look at the paperwork. Now. Most annuities and life insurance products have a ten day “free look period”. If ten days have passed, see above, and either call the state securities commission or contact a securities attorney.