Seniors in your community may be targets of financial charlatans. I've received a number of disturbing reports recently from seniors about the abusive tactics of some advisors. Their actions are not only unethical, but they border on the criminal. You must be aware of these despicable tactics so you and your nest egg are protected.



A charlatan is defined as one who attracts customers with deceptive tricks. They look for easy marks and quick profit. Equity Indexed Annuities have a high commission and a sales pitch that is enticing to risk-averse seniors, so they are often used by these shady advisors.

Even though I am against Equity Indexed Annuities, I do not believe that everyone who sells them is a charlatan. Many advisors are trying to offer an investment that they believe is in their client's best interest. There are a large number of advisors, though, who are unscrupulously taking advantage of their client's trust.

Warning 1: Any advisor who recommends 100% of your investable assets be placed in ANY investment or investment category is looking after their own interests, not yours. Beware of following any of their recommendations.

For example, John (not his real name) is 80 years old and lives in a retirement community in south Texas. There are over 2,000 other retirees in his community and 5 similar communities next to it. Since seniors and retirees are the ones with money to invest, these communities are heavily targeted by advisors in search of a commission.

These advisors start by offering free pizza and a seminar at the local community center. Who doesn't like free food, especially when you're living on a fixed income? Lots of folks enjoy the food and listen to the pitch.

In John's community, these charlatans then started going door-to-door pushing an investment they portray as a way to avoid income tax, avoid probate, and earn a safe, risk-free return. John, like his neighbors, was skeptical at first. It sounded too good to be true.

The advisors were relentless. They kept showing up at his house, calling him on the phone and wooing him with the wonderful benefits he would enjoy. In the end, they convinced him he needed to invest ALL of his money into an annuity contract lasting 10 years. He sold stock he'd held for decades and invested that so he would pay less income tax.

These charlatans used John's fear of paying taxes and losing money in the market to trick him into a decision that he already regrets. They seemed so genuine. The more they talked the more confused John became. Surely any second thoughts he was having were just his fault.

Warning 2: Never sign any paperwork without first reading it and taking the time to fully understand everything it says. If you are confused, seek a second opinion.

John signed their paperwork--and wasn't even aware of what he was signing. They didn't give him time to read it and, not being a sophisticated investor, he wouldn't have understood it if he had. The papers he signed are designed to protect the advisor from legal liability for their actions. Those papers place all the responsibility on the investor and are like a get-out-of-jail-free card for the advisor.

The consequences of John's decision are painful and difficult. By selling stocks he'd owned for years, he will now end up paying capital gains taxes he otherwise wouldn't have had to. He is currently in the lowest tax bracket anyway. In the long run, he will end up paying more in taxes with the annuity, not less!

Now John has very little access to his money. Even if he dies, it is likely his heirs will have to pay significant surrender penalties to get money out of the annuity. If John needs or wants his money several years down the road, there is a good chance he will get back less than he invested because of these penalties.

This unethical behavior would not be tolerated by the SEC. But Equity Indexed Annuities aren't regulated by the federal government. That lack of oversight opens the door for financial charlatans to take advantage of unsuspecting seniors.