Introduction to Senior Suitability




"An annuity is a very serious business; ..."   Mrs. Dashwood, Sense and Sensibility, Jane Austen




Had Jane Austen lived in the 21st century, her Mrs. Dashwood might have added:  "and very complicated, too."  As most financial advisors can attest, annuities have evolved into very complex financial instruments.  That complexity has stirred up a debate.  On one hand are those who can list 10 good reasons why everyone should invest in annuities, while an equal number of advisors have lists of reasons why no one should invest in annuities, ever.  As with most debates, the truth can be found somewhere between the two extremes.  


At one time, an annuity was a simple concept -- it was simply a series of payments.  The word "annuity" comes from the Latin word for year, annum.  Initially, an annuity was a fixed annual payment paid to the recipient for the remainder of his or her lifetime.  It was simply a type of pension (and what concerned Mrs. Dashwood was that once her husband agreed to pay his half-sisters an annuity, he would be "on the hook" to make annual payments for the rest of their lives — a very serious business, indeed).  


Today most annuities pay monthly income, and the word “annuity” has come to describe any stream of payments for a guaranteed period of time.  The payout period may be fixed, such as ten years, or the annuity period can be measured in terms of the recipient's life.   The concept of an income stream that lasts a lifetime is, for many, a very comforting thought.   There are, however, financial advisors who twist this reassuring concept into a fear-driven sales pitch: "What if you outlive your income?"    Such sales practices,  coupled with the complexity of today's annuities,  have prompted regulators to enact new suitability rules for advisors who recommend the purchase of annuities to their clients.   



In Chapter 1 we will explore updates to Florida’s new suitability requirements.  In Chapter 2 we’ll review some of the more complicated features of annuity contracts that may affect whether an annuity is suitable for a particular client.  Chapter 3 discusses potential annuity investors, their investment objectives and other factors that may affect their decision to purchase an annuity.  Chapter 4 addresses the regulatory framework in which the annuity industry operates, and specific laws and rules Florida agents should be aware of.  


Before we start, please review the following two press releases issued by the Florida Department of Financial Services.  As you can see, the suitability of annuity recommendations (or lack of suitability in these cases) can have major financial and personal consequences for annuity purchasers — and the Department has taken its responsibility to protect the annuity buying public very seriously. 

Text Box: FOR IMMEDIATE RELEASE							November 14, 2008
CFO Sink, AARP team up to find greater protections for senior investors in Florida
Solutions discussed during second meeting of Sink’s Safeguard Our Seniors (SOS) Task Force
With seniors age 65 and older expected to soon represent 30 percent of Florida’s population coupled with an upward trend in complaints to her office about financial products such as annuities, Florida Chief Financial Officer Alex Sink challenged members of the Safeguard Our Seniors (SOS) Task Force to consider meaningful financial protections for senior investors. The task force was created to help better protect Florida seniors against financial fraud, with an immediate focus on annuity fraud.
“The number of complaints from Florida seniors about annuities has nearly quadrupled in the last three years,” said Sink, whose department has opened 474 investigations on financial fraud involving seniors, with 70 percent of cases related to annuity and life insurance transactions. “Better financial protections for our growing population of senior residents and tougher consequences for those who defraud our seniors demand our immediate attention.”
Teaming up with CFO Sink Thursday was AARP Florida representative Bentley Lipscomb, former secretary of the Florida Department of Elder Affairs.
“Over the last several decades, Florida has spent a lot of money and energy encouraging seniors to retire to ‘paradise’ here in Florida. With the current market conditions, we have an even greater responsibility to protect them from financial fraud as they look for ways to invest their hard-earned savings during retirement,” said Lipscomb, who shared information about AARP’s new “No Free Lunch” program initiative. The program recruits senior citizens to attend and report on high-pressure sales tactics for investments at free lunch and dinner seminars advertised under the guise of helping seniors learn how to grow and protect their retirement savings.
Sink and task force members also heard from Anne Ridings, a guardian with Lutheran Services, who recounted her experience with Joseph Seale, a former resident of Ft. Myers. In 2006, following the sale of Seale’s home, a life insurance agent sold three annuities with a 15-year surrender period to Seale, 85 years old at the time, that tied up all of his liquid assets. Months later, Seale was hospitalized and Ridings was appointed his guardian by the courts. Sink’s department was contacted by Ridings to get help for Seale who was about to be evicted from the nursing home because he had no funds to cover his expenses. The department was able to recover more than $256,000 for Seale, representing the original investment without penalty, which helped Seale remain in the nursing home with proper care. The agent, who made over $13,000 in commissions selling inappropriate annuities to Seale, had his license revoked by the Department.
Sink and task force members heard from Erika Dine, an elder law attorney from Sarasota, about the difficulties in prosecuting financial fraud against seniors due to advanced age and health-related concerns. Members also heard from Scott Stolz, President of Planning Corporation of America, a division of Raymond James Financial. Three years ago Raymond James set product criteria for the indexed annuities it offered. That criteria included a limit on both the length (10 years) and size (10%) of the surrender charges. According to Stolz, they have yet to receive a single client complaint on any of the $150 million in indexed annuities they have sold. Part of the problem, Stolz said, is that some indexed annuities sold within the marketplace have surrender periods as long as 20 years and as high as 20 years and 20 percent. Such contracts could not possibly be deemed suitable for seniors in their late 70s and early 80s.
According to Sink, there are several solutions that appear to be consistent themes for better protecting senior investors including:
Tougher criminal penalties for those who are convicted of annuity fraud;
Stricter monitoring of sales agents by insurance companies;
More aggressive education of industry, law enforcement, state attorneys, judges and the public;
Greater oversight of and higher standards for obtaining certifications or designations to sell annuities; and
Creating an independent alternative dispute resolution process to resolve disputes involving agents’ sale of inappropriate products to seniors.

Sink said recovering funds for senior victims is typically difficult and prosecution can take up to a year or longer while the senior struggles with no access to needed funds. Last session, CFO Sink advocated for legislation to increase the penalties against criminals who commit annuity fraud, but the Legislature failed to pass the bill. Without stronger penalties, it is incredibly difficult for state attorneys to devote the resources necessary to prosecute these offenders.

The SOS Task Force is scheduled to meet again in early January to consider solutions to better protect seniors against annuity fraud, task force members will also deliberate ways to safeguard seniors against problems associated with Stranger-Owned Life Insurance (STOLIs) products and reverse mortgages.
Text Box: PRESS RELEASE 									10/28/2008
Florida Chief Financial Officer Alex Sink’s investigators recently helped Kikuko West, a Vero Beach senior, recover more than $217,000 in potential losses after she allegedly was tricked into prematurely replacing an existing annuity by an area insurance agent.  Kikuko, 75, contacted the Department of Financial Services (DFS) after hearing about CFO Sink’s newly created “Safeguard our Seniors”(SOS) Task Force, which is examining ways the state can reduce financial fraud against Florida seniors.    
CFO Sink’s office has also helped recover more than $300,000 for an 81-year-old woman from New Port Richey as well as nearly $325,000 for an 82-year-old living in Daytona who were both scammed into purchasing inappropriate annuity investments and called the department for help.    
“Every year, my department investigates hundreds of bad actors who prey upon Florida seniors, like Kikuko, luring them into inappropriate investments,” said CFO Sink, who oversees DFS.  “We created the ‘Safeguard Our Seniors’ Task Force to identify how our state can better protect seniors from financial threats, starting with annuity fraud.”   
According to Kikuko, the agent attempted to replace her and her husband’s existing annuity policy with a new one.  The agent had committed in writing not to finalize the transaction or transfer any funds until Kikuko and her husband returned from a trip up north.   Despite the written commitment, the agent proceeded with the transfer of funds.    
After reviewing other paperwork left behind by the agent, CFO Sink’s investigators were able to determine that the agent appeared to have violated Florida law, which requires that buyers have a 15-day free look period without penalty once the contract is received.  At the time of the funds transfer, Kikuko had not yet been presented with a contract.  DFS is now investigating the agent’s actions in this case.   
To learn more about the SOS Task Force or what to consider when purchasing annuities, visit  Senior Floridians who believe they may have been the victim of annuity fraud should call 1-877-My-FL-CFO or log on to  to file a complaint.