As you get older, your physiological systems slow down. This is natural. It is part of the aging process. Not only are you not able to get around physically as well as you once did, you may not be as sharp mentally as you once were.
With our aging population, especially in this economy, there are con artists out there that are finding a whole new pool of victims. The number one goal of these con artists is to separate you from your money.
One thing that has been on the increase is the door-to-door salesperson scams. Work is challenging enough for legitimate door-to-door salespersons, let alone with all the con artists out there. I can remember what it is like, because I sold Cutco knives to help pay my way through college.
It is one thing if the door-to-door salesperson is selling a product, something that you can see and touch, like aerial photographs of your property or Cutco knives. You know what you are buying. It is a completely different matter when the salesperson is selling services or financial products, like insurance or investments.
Home improvement scams. Most people have heard about or experienced the home improvement scam. Someone will come to your door and say that they had roofing job or a driveway re-coating down the street and had some extra material and “we can give you a great deal because we are in the neighborhood.” Now it could actually be the case, if that individual is from a trusted local contractor whose name is on the side of his truck. However, more often than not, the contractors are from out of town and have no names on their trucks. After they receive your money, you likely will only have the start of a roofing job or your driveway is only coated with watered-down paint.
Estate planner scam. There are door-to-door salespersons out there who, knowing that 70% of you have no estate planning documents, will frighten you by telling you that the state is going to take all of your assets if you do not have some sort of estate plan in place. They say that this plan must be a trust-based plan and they can do it in the convenience of your own home. After payment of $3000, $4000 or more, you are given a fancy estate plan book. You are told that your plan was “prepared by an attorney”, but you never meet with or talk to an attorney, just the salesperson.
When you finally review your trust book, you notice that it is pretty much fill in the blank and there typically are lots of unfilled blanks. I have reviewed quite a few of these “plans” and they typically have the same provisions in them. You have very few options. They are a will substitute probate avoidance style of trust with little or no protections for you during periods of your disability or for your surviving spouse, children or other beneficiaries after you are gone.
Unfortunately with these plans, you do not even get what you pay for. If you are doing a will, financial or healthcare powers of attorney or a trust, make sure you are dealing with a licensed Michigan attorney who has the proper training and experience in preparing those types of documents. I have not reviewed any estate plans that have been sold by door-to-door salespersons that I would consider sufficient to meet the needs of the individual. In these situations the consumer certainly did not get what they paid for.
The trust/annuity scam. Often what happens next is that you are told that your trust won’t work unless you invest all your assets in an account with the salesperson. All your investments are then placed in annuities. You are then told that the annuities will make sure that your plan works or minimize taxes or make sure that your family gets your assets after you are gone. What you are usually not told is that if you invest in annuities, your funds are generally locked up for a period of time and that if you need to withdraw funds above a certain amount, you could be paying substantial surrender charge penalties.
Be aware that when you are purchasing annuities, higher the surrender charge penalty and the longer the surrender charge penalty period, the higher the commission to the annuity salesperson. I have seen annuities with 16% surrender charge penalties and 20 year surrender charge periods sold to individuals in their 80’s.
Whenever you are purchasing annuities, be aware that the first year surrender charge penalty often approximates the commission that the annuity salesperson is receiving. For example, if you invested $100,000 in an annuity with a 16% first year surrender charge penalty, the annuity salesperson would be receiving a $16,000 commission on that sale.
The annuity – life insurance scam. If you need life insurance and you had the investable assets to finance it, you might think about purchasing a single premium life insurance policy which is fully paid-up. When that purchase is completed, the life insurance salesperson receives their commission on the sale and the deal is done.
One scam that I have seen is where the annuity salesperson has you purchase a high commission immediate annuity which pays out on an annual basis. This annual payout is designed to pay the annual premium on a new life insurance policy. Instead of receiving one commission for just the life insurance policy on a single premium, the advisor gets a much bigger commission on the annuity and still gets a life insurance commission every year when the premium on the life insurance is paid. This is a classic double-dip.
The homeowner’s insurance scam. With this type of scam, the person at your door represents that he can help you save money on your homeowner’s insurance. This type of con artist is usually very slick and does not seemingly ask you any real personal questions. However, by the end of the visit, he knows all about you, who else is living in your home, their ages, whether you have a pet or an alarm system, where you bank, whether you have an ATM card and who holds your homeowner’s insurance. You are told that the salesperson can do some insurance comparisons for you, but needs your driver’s license number and have you sign some papers. You are not given much time to review the documents nor do you get to keep a copy of them. One of the documents you signed may be a financial power of attorney. This then allows the con artist full access to all of your bank and other financial accounts.
The one-stop-shop. There are outfits out there that claim to be the one-stop-shop, who can take care of investing all of your assets (into annuities), prepare your estate planning documents and just so you don’t have to worry about it, they can even do your income taxes every year. You don’t have to go anyplace else. Before you do any one-stop-shopping like this, fully investigate the company to make sure that they are a legitimate company. Just remember the old saying that the jack of all trades is a master of none. You don’t have your family general practitioner do your heart surgery any more than you should have your financial planner prepare your estate planning documents.
Just remember, there is no shortage of people that want to separate you from your hard earned savings and they will even come to your house to do it.
By: Matthew M. Wallace, CPA, JD
Published edited November 6, 2011 in The Times Herald newspaper, Port Huron, Michigan as: Beware of the weaselly con artist