Retirement experts Scott Hanson and Pat McClain, co-hosts of Hanson McClain's Money Matters, explain to a caller how a big bank is taking advantage of his 76 year-old mother-in-law, and how he can fix it.
Pat McClain: Shannon, thanks for joining us.
Shannon: Thank you for taking my call.
Scott Hanson: Yeah.
Shannon: I'm calling in regards to my mother-in-law. She's 76. She went down to have her CD changed over because it had matured, and the guy said he put her into a seven-year CD. And so I told him, "Well, let me look at the paperwork," and what I got is it is a fixed deferred individual annuity.
Pat McClain: Okay. And how much money did she put into this?
Shannon: She put 58,000 into it.
Pat McClain: How long ago?
Shannon: This year.
Pat McClain: Okay.
Shannon: June of this year.
Pat McClain: All right. And she's 76 years of age?
Shannon: Yes. And it matures when she's 95 years old.
Pat McClain: Oh, got it.
Scott Hanson: Oh my gosh.
Pat McClain: But how long is the surrender charge on it?
Shannon: Well, it says first guaranteed period is five years.
Pat McClain: Got it. Yeah, that's where the interest rate is guaranteed but there's a surrender charge schedule, should be one in there, where if she pulls the money out in the first year, they're going to charge you X amount, second year...
Scott Hanson: She thought it was a seven-year...
Pat McClain: She thought it was it a CD?
Shannon: CD and...
Pat McClain: So, this is pretty easy...
Scott Hanson: What's her situation like?
Shannon: Well, this is everything she's got.
Pat McClain: Oh, okay. So, this is...here's what you need to do. You need, Shannon. You need to go...
Scott Hanson: What state do you live in?
Scott Hanson: I'd contact the California Department of Insurance.
Pat McClain: I'd go to the bank first.
Scott Hanson: I'd still contact them.
Pat McClain: Yeah. We've had these reversed for people that've come in.
Scott Hanson: Is she widowed?
Pat McClain: Okay. So, you need to go down, you need to call the bank branch manager.
Pat McClain: And you need to explain it to the bank branch manager and then you want to talk to the head of compliance for the broker-dealer that that particular salesperson works under.
Scott Hanson: Was this a large bank or a regional bank?
Shannon: Security Pacific...I was frightened because the company name that they put it under was Oxford.
Pat McClain: Okay, but that's an insurance company. So, here's what you want to do. You're gonna call the branch manager. So what happens, a lot of these banks will partner up with some sort of brokerage firm that sells financial products, including fixed annuities, and what happens is your mother-in-law goes in there and says, "I need something that pays a higher interest rate than this." And they say, "Oh, go and talk to that guy or girl in the corner."
Scott Hanson: And the person in the corner has a financial incentive to sell your mother-in-law an annuity, as opposed to having her sticking in the CD. They have a financial incentive, a conflict of interest.
Pat McClain: So, you go in there and you say to him, "Look, this is inappropriate." You talk to the branch manager and you get the name of the head of compliance for the broker-dealer and you call them up and say, "Look, my 76-year-old mother-in-law, who's widowed, has $56,000 to her name. She came in when her CD renewed and she ended up with an annuity with a big surrender charge on it that doesn't allow liquidity. This was absolutely inappropriate." You couldn't get more...well, you could get more inappropriate, but this is pretty far down on the spectrum of inappropriate investments.
Shannon: That's what I thought.
Pat McClain: So, they will reverse it. So, if you look at it...if you look at the...
Scott Hanson: They're not going to say that immediately.
Pat McClain: They're not going to say it immediately. You're going to say, "I'll talk to the department of insurance." They will reverse this thing. We've seen it done. I've seen it done.
Scott Hanson: Particularly a big bank.
Pat McClain: I've helped clients do this. So, you just go in there and you talk to the branch manager and the head of compliance for the broker-dealer. Don't talk to the person that sold the product.
Scott Hanson: No, they'll backpedal and try to...
Pat McClain: They'll tell you...and then they'll reverse it. They'll go to the insurance company. The insurance company will give up the cash. There'll be no surrender charge on it. They will reverse it and you get it all back and you will move it to a...
Scott Hanson: But they're not gonna... They won't start with that.
Pat McClain: No, they're not. They'll be like, "This is appropriate." And you just say, "Hey, we could get the Department of Insurance in here and we can have little a discussion as to whether 100% of this person's net worth, liquid net worth was appropriate for a liquid product."
Scott Hanson: Yeah. A widow, a 76-year-old widow.
Shannon: So what would you recommend that she puts it in?
Pat McClain: Bank CD.
Scott Hanson: Yeah.
Pat McClain: Leave it in the bank. Leave it in the bank. She might need it. Yeah. Keep some in savings and maybe half of it in the CD or all of it in savings.
Scott Hanson: Yeah.
Pat McClain: All right. Appreciate the call. Sorry that happened to her.
Shannon: We've been listening to you guys for years. I really appreciate you guys.
Pat McClain: Oh, thank you.
Scott Hanson: Okay. Thanks, Shannon. Sorry that happened to you. And I tell you, you hear us talk in this program about the importance of using the fee-based financial advisers, someone who receives the same fee regardless. Their comp is not tied to what they sell you. It's just a conflict of interest. How many times have you see this at the bank?
Pat McClain: More times than…
Scott Hanson: It is just frustrating.