Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Here’s what they told an audience ranging in age from 25 to 70 — Which of the following is a true statement?

1) Annuities are straightforward, excellent investments for most people at or near retirement. In fact, the older you are when buying an annuity, financial advantages are increased, making them even more suitable.

2) Sale skyrocketed after the 2008 stock market crash as they became highly attractive to people who had lost retirement money, wanting to assure income they could not outlive.

3) While rare, when a life insurance/annuity company fails, others step in to pay policyholders. In addition, there is protection from the FDIC, just like with banks, making your annuity a safe, guaranteed investment.

Fear — a powerful sales tool

Ingrid Evans (EvansLaw.com) is a financial elder abuse attorney, now in private practice, having prosecuted one of the first cases of this type 10 years ago when she was a deputy city attorney in San Francisco. She has seen firsthand what results when an annuity salesperson’s most powerful tool — fear — is used on the elderly, she told You and the Law.

“Fear is an incredibly effective tool — the fear of not having enough money as we age. Even a mediocre salesperson will either sense that fear or create it by painting a world of gloom and doom in which the only way to safeguard yourself is by purchasing an annuity to assure a source of money that you just can’t outlive,” she explains.

“There is nothing simple about most annuity contracts, but when reduced to their basic elements, you give the insurance company X dollars, and they agree to either start paying some of it back immediately, or at a time in the future. Generally, the big selling feature is lifetime income, where payments can be yearly (from which the word, annuity — annual — comes), monthly or whenever the policyholder specifies,” Evans states.

Stockbroker X, who is a friend of this column and works with one of the nation’s largest investment houses, observes, “What made annuity contracts attractive were guaranteed increases, where, for example, your payments might increase yearly by a certain percent, or the value of the annuity would go up. Let’s say 5 percent a year — possibly more if you had an annuity which invested some of your money in the stock market.
“But in our almost zero interest rate environment, those increases have shrunk dramatically with newer policies, and some insurance companies are no longer even selling annuities,” he points out.

“Annuity ads splash around the word ‘guaranteed’ — a direct appeal to people who lost money in the 2008 crash. The impression created is that your money is just as safe as in a bank. The need for safety and a desire to protect remaining money led to a dramatic increase in annuity sales starting in 2008,” he explains.

Rarely a good investment, terrible for many people

“If you might need access to your money — possibly for health care issues, especially for those over 65 — annuities are horrible. Money is typically locked up for years, and cashing out often means enormous penalties on top of the huge commissions charged.

“What’s worse is that deferred annuities — which start paying years down the road — are being pushed to seniors. Often, these are completely inappropriate because of the age of senior citizens, many who will never be able to take advantage of the various features sold them,” Evans notes.

“Annuities are not like a bank CD. They have no FDIC protection. There is a real risk of loss. While other insurance companies may take over some assets of a failed insurer, they are not obligated to. Finally, state guarantee associations do not provide complete protection for all policyholders,” the elder abuse attorney stressed.

She is completely right.

In April of this year, even with $700 million contributed from state guarantee associations across America, thousands of Executive Life Insurance Co. policyholders lost hundreds of millions of dollars from its failure — many having their monthly payments slashed by more than half.

“Hold on a moment,” you might be thinking. “Can an annuity ever be a good investment?”

“Yes, indeed, and they do serve a purpose. That’s why it is so important to obtain objective financial advice from a fee-only financial advisor who isn’t going to be influenced by the enormous commissions annuity sales generate,” our friend, Stockbroker X told us, and we absolutely agree.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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“My parents are both over 60 and close to retirement. Before the real estate bubble burst, they sold farmland — which had been in the family over 50 years — for more than two million dollars. It was purchased by a real estate developer, but within months of the deal going through, he filed for bankruptcy. Today those 160 acres are owned by a bank.”

“Mom and Dad were incredibly lucky at that time, going from a couple who wondered if they could retire to tremendous financial security. However, now I am worried they are at risk of making a completely wrong investment with a great deal of that money,” Daniel wrote.

“They have always been conservative, keeping what little money they could save at a large investment company, in CD’s and other very safe investments. With the addition of money from the sale of that farmland, their stockbroker has been drooling over how to start earning commissions. Now, he wants them to buy a One Million Dollar Annuity! He tells them it is great for their retirement and claims it is safer than any other place they could park those funds themselves.”

“I have read about annuity scams and frankly believe that people at their age should steer clear of annuities. We all read your column, respect your advice and would appreciate discussing this with you.”

I phoned my readers and discovered their son was absolutely justified in being concerned. As our nation’s financial health is very much unsettled, insurance salespeople and stockbrokers are now capitalizing on fear, selling “safety” in the form of annuities from the nations “strongest” insurance companies.

But there is no insurance company too big to fail. Over the years some have indeed failed, costing annuity owners millions of dollars.

Annuities 101

Here is how an annuity works:

You pay an insurance company a lump sum of money — or make yearly contributions — it is invested, grows and is paid back to you at an agreed upon date, far into the future. The big selling point is that annuities generally pay for your lifetime, so it is a source of money you can’t outlive. They are often described as your own private pension plan. But they are generally not a good idea for anyone over 55 and here’s why:

“It takes 20 to 30 years to realize tax and investment benefits, and the yearly fees charged by the insurance company can easily amount to 4 percent yearly taken away. This eats up tax benefits, and then there is the risk of inflation, as well as the risk of a bankruptcy of the annuity company.”

“If you need to access your money earlier — a medical emergency, for example — the surrender charges could be up to 10 percent,” Melissa Gannon, told me when we discussed these issues. She is Vice-President of Insurance and Bank Ratings for TheStreet.com Ratings, Inc.

“An annuity is an expensive insurance product and must be suitable to the person buying it. For example, a variable annuity could be the worst thing for someone over 55, as you are really just telling the insurance company to take your money and invest in the stock market. If we hit several years of a down market, and you retire, you could wind up losing thousands of dollars with that annuity at the time you need the money the most,” she points out.

“You Are Paying for Safety”

Melissa knows all too well what can happen to the policyholders when a huge company fails.

“In 1990 the largest insurance failure in history was Executive Life Insurance, based in California. More than “hundreds of millions” were lost by policyholders, many of them older Americans. When an insurance salesperson or stockbroker tells you his insurance company is stronger than anything you could put your money into, this is not true,” she points out.

“It isn’t true for the simple reason that an insurance company invests in the things all investors put their money into: the stock market, real estate, government bonds, corporate bonds, and in some cases, bonds based on sub-prime mortgages which have fallen in value enormously.”

If An Insurance Company Fails?

“Every state has an Insurance Guarantee Association which steps in should an insurance company fail. Depending upon the state you are in and the type of annuity purchased, you might only get a maximum of $100,000 from the Guarantee Association. So, if your readers bought a one million dollar, fixed annuity from their stockbroker, and the insurance company failed, they could lose $900,000! Again, life insurance companies are subject to the same realities of survival in business as any company. There is always some risk, and before investing, you must do your homework,” she stressed.

Homework 101

www.thestreet.com allows anyone to download a free financial report-card on banks and insurance companies. For an annuity purchaser, you need to know its financial strength and claims-paying ability.

What is different about www.thestreet.com is that they are NOT paid by the companies who they rate. Unlike AM Best, Moody’s, Standard and Poor’s and Fitch, www.thestreet.com is not in a potential conflict of interest situation. In fact, their predecessor company, Weiss Ratings, was one of the first to alert the nation to the dangerous position Executive Life Insurance was in prior to its failure. I interviewed Martin Weiss in the months leading up to that monumental event. He was so right it was scary.

Finally, Melissa had this advice when an insurance agent or stockbroker is in your home. “Be nice, feed them cookies, take all of their advertising materials and politely walk them out the door. Review their proposal with a fee only financial planner with no interest in what you buy. In general, and this is my opinion, annuities are not a good investment. Period.”

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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“Want to know the easiest way of separating people from their money? Join a Church!”

That was the way “Greg” began one of the more interesting discussions I have had in recent months with a reader. Our conversation began with his e-mail, catching me at my computer. “If you have a moment, may I phone?” he asked.

Within seconds I was on the line with a self-described “Investment Con Artist” who admitted to having taken several hundred thousand dollars from dozens of “Believers” during times when “people who have saved money were upset with the low amounts of interest they were being paid by banks.”

Why did he want to speak with me, and what was the urgency I sensed in his voice?

Time is running short

“For obvious reasons, I can’t tell you where I am, but let’s just say that I used to live not far from a town where your column is widely read. I am in my mid-50s and have recently been diagnosed with a nasty form of cancer, which I accept as a payback for the things I’ve done. You know the old saying about there being no atheists in foxholes, and that applies to me. This is the first time that I have ever been serious about prayer, and confessed what I’ve done to a priest. I asked him if there is anything I can do to help lessen my sins. He suggested that I talk with a journalist. I thought of your column. Will you help me?” Greg asked.

While a bit skeptical at first, the longer we talked, Greg gave me more than enough reason to believe what he was saying, in large part because he described in detail one of his scams. As it turned out, several of his victims — also readers — wrote to You and the Law.

Appeal to trust and greed

“These are times when, for anyone fed up with getting hardly any interest on a retirement, savings, CD or other bank accounts, it is natural to look for higher returns. This is how guys like me find our victims, and a church is the ideal hunting ground. It’s the only place where trust is assumed, and you don’t have to prove a thing,” Greg related.

“Just say the Lord’s name enough, talk about values, honesty, helping your fellow human beings, and you will inspire trust. I attend services, contribute generously, always available to help any church member, and drive a nice but not flashy car. I give the impression of being financially successful, well before going to the next step in my plan,” he continued.

“That’s timing and understanding human nature. For example, years ago when interest rates were low and with a cover as a legitimate investment adviser, I casually mentioned that I was able to obtain guaranteed interest-paid-monthly-five times actual, commercial rates. It was, of course impossible, and I was running a Ponzi scheme, paying off early investors with money from people who came in later, until I had stolen most of the funds, and left town, never using my real name,” he added.

I asked Greg how it is that anyone believes they can earn 20 percent interest a month when banks are paying 3 percent yearly? “The answer is found in the Bible, Koran, or other holy books,” he replied.

“They all tell you greed is bad. Yet, this motivates even highly educated, trusting people to attempt almost any way of making oodles of money, tossing common sense right out the window. In these kinds of schemes, happy early investors — who did get that interest check — told their friends. They were my best form of advertising, and people were lining up to give me money. Of course, with every Ponzi scheme, the guy in charge — me — keeps most of the money, and few people ever ask for their entire investment back early enough, until there is no more money available. By that time, I was gone.”

Slept well at night

Greg “slept very well at night,” because he was completely aware of who and what he is.

“I am what psychologists call a sociopath. This was diagnosed when I was a kid. We tend to be highly intelligent people with good communications skills, likeable, but do not have a sense of morality or a conscience. Life for a sociopath is finding the easiest way of getting your hands on money, while seeming to be honest and trustworthy. Normal relationships are not part of our world. You do not care about anyone else, unless it benefits your own personal financial or physical security,” he explained.

Advice for my readers

I felt there was more to Greg’s story than seeking a free pass into heaven, and told him that. He agreed. “Something also motivated me to speak with you. Smaller cities and towns are dangerous places for honest people with people like me around. My mom — now in her 80s — was taken to the tune of $30,000 by someone just like me. Seeing her grief was something of a wake-up call, and I figured that with the little time remaining I have, why not do something good,” was his answer.

We ended our conversation with one more question I had for him. “Beyond a story, which I will write, is there anything else you would like from me?” There was.

“I need a good lawyer. Do you know a good criminal attorney close to Sacramento?”

Even if I did, I’d never tell him.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Part 1

If your stockbroker sold you improper, excessively risky investments, or-failed to disclose the riskiness of what appeared as an otherwise conservative investment, and as a result you lost your shirt — then today’s story will be especially relevant.

For my readers who are stockbrokers, I’ll tell you right now that I’m going to make some of you angry, revealing what most of your clients would never suspect.

This article began with an e-mail sent to me by Hal, a few days ago.

“My wife and I are both 67 and retired, living off small withdrawals from our 401K retirement account and Social Security.”

“The final stages of our retirement planning were about 3 years ago, getting our house paid off, telling our broker that we wanted to gradually move into much more conservative, virtually risk-free investments. Yet, in 2006, 2007 and early 2008, close to 85 percent of our money was in the stock market, invested in things our broker insisted were super safe. We trusted him to watch out for us,” he continued.

“In January this year (2008) we met with our stockbroker, concerning about the economy and the safety of our investments. Most of what we were sold proved to be the worst imaginable, including Washington Mutual, Wachovia, Lehman Brothers, Indy Mac Bank and other financial institutions who have gone out of business, and I should not forget Freddie or Fannie. From a retirement nest egg of over a million dollars — built over 25 years — we have something like $200,000 remaining, in bank C.D.’s. Both of us are now under the care of our family physician, who has us on anti-depressive medication. We tried to play by the rules and now feel so badly cheated.”

“From what we have described here, do you feel there is anything we can do? Do we have realistic claims against our stockbroker for putting us into those investments?”

Those hurt worst did all the right things

The last several months of 2008 will be seen by future historians as one of the most destructive economic times in our nation’s history. So often, those who did “all the right things” in terms of financial planning were the worst hurt.

In many cases, they were the ones with responsibility, discipline and, most of all, fear of poverty handed down to them by parents who still had memories of the Great Depression.

They used credit cards sensibly. They bought what they could afford and what they needed. They didn’t buy a home well beyond their means or drain equity from a house they had nearly paid off, committing themselves to many more years of house payments just to buy an SUV or take a vacation. In short, they realized that unnecessary debt was dangerous. In a nation where only the few maintained a savings account, they took joy in the simple act of saving.

“Your readers are an example of the couple who did everything right. They saved for retirement, avoided debt and trusted a broker to guide them towards the right investment decision. In an incredible number of instances, it was trust wrongly placed, not only because clearly improper investments were sold them, but had the truth been known as to broker’s compensation or the real risk associated with these securities, the customers would have never purchased them,” argues Securities Attorney Nicholas J. Guiliano, who specializes in the area of Investment Litigation.

“You were lucky to get through,” the straight-talking Philadelphia lawyer told me during our recent conversation. “Our phones are lit up like Christmas trees, but it is going to be a sobering Christmas for millions of Americans this year, and very likely for several more years to come,” he fears.

His beliefs were shared by a high school principal turned stockbroker, with whom I discussed how so many hard-working people got taken. We spoke with my assurance of confidentiality.

Your stock broker is only a salesman

“Dennis, the public needs to see past the lovely offices, expensive furnishing, and appearance of prosperity this industry creates. I and thousands of stock brokers like me are salespeople — that’s all we are. So much of what we call “investing” is really a form of gambling — so much hot air — with the assurance if you stick with the program, we’ll deliver just what you need for a secure retirement, your children’s college expenses, or whatever your goal.”

“Our training includes an enormous element of sales psychology — how to create the image that we care, can be trusted, and our experts see the future. The truly dangerous part of this is the art of making the client feel just a little bit silly, stupid or ignorant if they don’t follow our recommendations.”

“We are very good at making the typical client feel inadequate to make sound financial decisions, and to therefore rely on our advice. We replace their legitimate doubts with soothing assurances of our concern for their welfare, and their feelings are well known and have been taken into consideration by management in forming our recommendations,” he added.

“Think of a stockbroker as one of those pretty ladies at the perfume counter of your local department store. She is there for one purpose only — to make a sale. As she is probably on commission only, if there’s no sale, her time with you has been wasted. Of course, if you buy the perfume, at least you’ll smell nice. We can’t guarantee anything similar — and lately, nice isn’t the fragrance which has come to mind — and the public needs to realize that.”

“Sure, there are brokers who do care and don’t knowingly sell junk to their clients. But one of the ethical challenges is our Football Team mentality, where we are encouraged — in part through generous perks — to push certain investments, and to laugh off questions a few gutsy brokers occasionally ask about excessive risk. They are usually patted on the head and told not to worry,” he concluded.

Next week: The warning signs were obvious years ago. But do you have a case against your broker?

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Part 2

Last week I told you about what happened to Hal and his wife, both 67, retired, and long time readers. From more than a million dollars in their 401K account as of January, 2006, their investments have lost close to $750,000.

Why? What went wrong?

“In our final preparations for retirement, in early 2006 even though we stressed wanting to be ultra-conservative, our broker steered us into some of America’s largest financial institutions who failed,” Hal’s wife, Martha, told me, sobbing.

“Invest in America, invest in your country,” he always told us, showing charts at what buying stock does. When we suggested selling our investments which had gone up in value — taking some of your winnings off of the table — he said we would miss out on further stock gains. He treated us like his son, and we trusted him,” she added.

Today, they are under a doctor’s care, taking anti-depressive medications. The fact they have a $200,000 bank CD was, “my doing, over Hal’s objections, because I realized that everything we had was in stocks, and it scared me,” Martha related.

I ran my reader’s factual situation by Philadelphia Securities Lawyer Nicholas J. Guiliano, who gave me the following analysis.

Investing means risks

“Your readers suffered tremendous losses which went far beyond the acceptable risks of being an investor. Fannie Mae and Freddie Mac were not safe, conservative investments contrary to what brokers all over the country were telling their clients. In early 2004, Regulators warned too many people were being placed into home loans they could not repay. This information was published in the trade publications brokers read,” he pointed out.

“Since February 2007, there was ample, credible information in the marketplace in the form of billion dollar write downs at the world’s largest financial institutions that confirmed the extent of the subprime loan crisis and ensuing financial meltdown.”

“Fannie and Freddie-among others — was a time bomb, with huge losses and write downs. The writing was on the wall at least two years back.”

“An investment advisor who has a conscience and is competent should never put clients in your reader’s situation into an incredibly risky investment such as these,” he said.

Brokers have a very high duty of care for their clients, known as a Fiduciary Duty. “The investments offered must be appropriate for their age, financial resources, risk tolerance and not because it generates a fat commission for the broker,” Mr. Guiliano stated.

“We are seeing so many cases where brokers downplayed known risk and knowingly made completely inappropriate recommendations to clients just like your readers. Given their age and present economy, they will probably never recover,” Attorney Guiliano observed.

“But what about large life insurance annuities that are now being pushed?” I asked the securities lawyer.

His answer gave reason for concern.

“If you place the bulk of your retirement funds with an annuity company and it fails, you could lose most of your money, regardless of their so-called guarantees. While there are State Guarantee Associations, you would be surprised at how little is actually protected,” he pointed out.

“A good broker or financial adviser needs to carefully explain the real possibilities of what happens when a company goes bankrupt and you own its stock, or if you have purchased a large insurance annuity,” he warns.

The need for balance

“Investments need to be age balanced. In general the younger you are, more risk can be assumed, but when you are getting close to retirement, common sense dictates less risk and more cash. This means bank CD’s and US Government Full Faith and Credit investments.”

“Losing money goes hand-in-hand with being in the stock market. If your broker’s recommendations were consistent with what you understood and wanted, there is very little basis for a claim, he was quick to point out.

“67-years old, retired and most assets in stock is simply inappropriate, actionable and your readers should have this potential claim evaluated by a lawyer who has particular experience in securities arbitration,” he firmly maintains.

For any reader interested, there is an association of The Public Investors Arbitration Bar Association at: Www.piaba.org

Finally, Mr. Guiliano opened one additional door where innocent employees have lost much of their employer sponsored pension and profit sharing retirement accounts.

“Lawyers in my field are expecting to see another casualty of the stock market crash: employer managed office retirement accounts. Where the boss managed employees’ retirement money in high risk ways — and suffered huge losses — this will hurt employees deeply and lead to suits alleging mismanagement,” he feels.

But that is a story to be written another day.

Attorney Nicholas J. Guiliano has an extremely informative Web site that’s worth looking at — especially if you see yourself in today’s story. www.Stockbrokerfraud.com.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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“The retirement planning firm I work for has just begun holding seminars where various strategies are discussed with an audience of, usually, around 50 people. My problem is stage fright.

“I’ve been reading your columns for years and know that you are a trial lawyer, did some research and found several articles in the ABA Banking Journal on Presentation Skills — including overcoming stage fright — by a Dennis Beaver. Is that you?

“Any advice or books on public speaking you can recommend will be greatly appreciated. Thanks, ‘Gary.’”

Yes, that’s me

Prior to attending law school, I planned on becoming a college speech teacher, and did bachelor’s and master’s degrees in speech/communications. After becoming a trial lawyer, I put those degrees to work, teaching speech at our community college and, for many years, presentation skills to bankers at the Graduate School of Banking in Madison, Wisconsin, every August.

A week prior to the session beginning, I phoned each student, learning why they were taking a course in public speaking and what specific problems they needed addressed. Among other issues, many reported: stage fright. In order to advance professionally, they had to become better speakers. Our class gave them the tools.

Performance anxiety, stage fright are real

The fear of death comes in second to someone who suffers from serious stage fright.

Resulting from too much adrenaline, symptoms before and during a presentation include a racing heart, shaky hands, vultures flapping their wings in your stomach, all of it leading to the feeling that something bad is going to happen.

Afterwards, “I felt physically exhausted, drained and glad that it is over,” are frequent comments I’ve heard, along with, “I know they think that I was just a bundle of nerves and stupid.”

The surprising truth about stage fright is that audiences rarely have a clue as to how nervous a speaker actually is unless you do the wrong things and reveal behaviors that communicate fear. However, where the person appears to enjoy speaking before a group, credibility and effectiveness go way up.

What you want to avoid

No matter how nervous you feel on the inside, your audience won’t have a clue unless you reveal those feelings through rigid behavior — standing with tense arms and hands, motionless, gripping the lecture for dear life — or inhibitory behaviors — a monotone voice, speaking too quietly, or too many “and…uh’s.”

In class, I ask all who suffer from stage fright to raise their hands. Over to one student I walk and engage in normal chit-chat — about her job, family, and kids — just light conversation. At some point I take her by the hand and we walk to the front of the class, still maintaining this pleasant dialogue.

Backing away yet still chatting with the student, soon she is alone, engaged in a pleasant dialogue with me — about anything by this time. And then I turn to the class and ask, “How’s she doing?” I hear a Kellogg’s Tony the Tiger response: GREAT! And I ask her, “How do you feel?” Another GREAT! “What did we just prove?” I ask.

“That it’s mostly in your head,” is the response from the class. The student admits to initially feeling very nervous, afraid it would be obvious and then began to enjoy this exercise.

How to reduce, mask signs of anxiety

1. Be the first person in the room

We are more comfortable speaking with people we know, so, be the first person in the room. By introducing yourself to a handful of audience members as they arrive, it creates a positive feeling. “Wasn’t that nice? The speaker actually went up to me, introduced himself, and we talked about his topic,” they think. Your level of anxiety will mostly fade away.

2. You are not obligated to open your presentation with a funny story

If you have a cute story that fits, then use it, but if you can’t tell a joke, then don’t audition for Saturday Night Live in front of this audience.

3. Think dialogue, not speech

Audiences love to participate in a dialogue with the speaker, so consider opening your talk with answerable questions. “How many of you are concerned about funding your kids’ college education, retirement, etc.?” Look for raised hands. Then, with hand gestures that make it clear you would like this person to explain, ask, “Betty, please tell me your concerns.”

4. Use the room to mask any nervousness

Feel earthquake hands about to come on? Simply rest your hands on the podium or edge of the table. Shaky hands — gone!

To establish good eye contact, move across the room, but do not pace back and forth. The audience will follow you with their eyes, and you, in turn will appear to give eye contact to everyone without trying.

5. Do not rely on visual aids — they will fail you! Keep it conversational, build reviews into the presentation

Visual aids are just that — aids, and should never become your talk, as they can fail at the worst moment. Your audience is not a pile of digital voice recorders — they can’t recall everything, so build in review points.

6. Really want to fail? Distribute handouts at the beginning of your talk. If it is a dinner presentation, start speaking when everyone is cutting into their steak

To deliver a completely forgettable presentation, distribute handouts at the beginning of your talk. Your audience will be fumbling with the material and not paying attention.

If it is a dinner talk, let everyone finish eating and then begin, as food is far more important than anything you have to say.

If you have a handout, distribute it at the end.

Two great resources: “What to Say When You’re Dying on the Platform” by Lilly Walters and “Do’s and Taboos of Public Speaking: How to Get Those Butterflies Flying in Formation,” by Roger E. Axtell. Both are available from Amazon.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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In 2008-2009, when the stock market crashed, so many people who were either close to or in retirement not only lost their shirt, but also their self-confidence, trust in their own decisions, respect from family members and a complete loss of faith in their financial advisor. Heart attacks increased significantly, especially among the elderly, as a Duke University study reported in late 2011.

“But just wait. If they jump back into the stock market, life for many of them — who lost over half of what they had accumulated over many years — could get much worse if we see even a mini-crash,” warns a Southern California stockbroker who we will simply call Mr. X, a veteran of 25 successful years with one of the nation’s largest investment houses.

He has a warning: “Many of these same people are now being frightened into getting back in, told that if they do not, they will not have enough money to live on.”

Mr. X isn’t selling a book which promises to save us all from disaster and does not claim to be prophet. Rather, he finds “mounting evidence of highly dangerous financial propaganda, aimed at those very people — crushed financially and emotionally by their earlier losses — the last ones who should ever dream of putting what they still have at risk back into the stock market.”

Not everyone needs to be in

“There are many people who should not be in the stock market — either by temperament and their inability to emotionally cope with loss — or who have no need to own stocks, which are never a sure thing, and always far from it,” X points out. “When you have sufficient income sources without stock dividends or stock appreciation, then you probably do not need equities.

This includes people who:

Live within their means and save;

Remain clear of unnecessary debt, especially from credit cards;

Do not treat their home like an ATM:

Own some type of income property, royalty, annuity or a small pension; and,

Will receive Social Security.

“You avoid the craziness — the fear — of making a mistake in not buying stocks again, by asking: Are my needs met, or will they be with what I already have in place? What can I lose by being at risk again in the market? What would that do to me emotionally, and in the eyes of my family?”

No duty to watch out for your money

X cautions us to be wary of ads which create an image of stockbrokers who place their customer’s financial interests first. That’s what a fiduciary does — places the client’s interest first. But, stockbrokers are not fiduciaries.

“Regardless of these comforting ads, a stockbroker has no legal duty to watch out for your money or act in your best financial interest, and certainly not to put you first. We sell investment products, and just like anyone in sales, it is because we want a commission,” he notes.

“We must not knowingly put you into something completely inappropriate, but until the law changes, a stockbroker has no fiduciary obligation to customers. So, unless it is very clear that you are suffering from some mental impairment and your decisions cannot be trusted, we will do what our customer instructs. That’s why adult children need to be aware of what mom and dad just might be getting into, if there are questions about judgment or self-control,” X suggests.

“Also, realize there is no requirement for us to call you and say, ‘Sell this stock!’ Some brokers will, but most are only too happy to sell you something and then almost vanish,” he stressed.

“Just talk with the people who rode the 2008 crash all the way down — losing in many cases well over half of their money — and worse yet, could have gotten out early, had their brokers just said, ‘Look, it’s bad, sell now, keep your profits in cash and wait to get in later.’ But that rarely happened.”

It’s more than just losing money

“Losing money in the stock market is often much more than just losing money. It can ruin your marriage. It can get you sued by your employees if you manage and lose their retirement money,” broker X underscores.

“Finally,” he points out, “Often investors have no idea of what the term ‘risk tolerance’ means to them. The answer is only revealed in a down market. If you have proven to yourself that you cannot accept risk then, you have already answered the question, ‘Should I again be in the market?’”

So, what are we to do? Annuities claim to protect our nest egg, provide money in the future and not be subject to loss in a stock market crash? But do they, and are they as safe as all the fancy ads claim? We’ll have the answers next week.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

The post Here’s what you don’t know about your retirement account and life insurance appeared first on Dennis Beaver.

You are close to retirement and discover that your employer lost almost one-third of the money in the office retirement account. In a conference, he admits to having become greedy, but thought of himself at that time as an investment whiz, acting on a hot tip, believing that old saying about not putting all your eggs in one basket didn’t apply to him.

That’s exactly what happened to Cathy and Sharon, the RNs we wrote about in last week’s story. These two dedicated 30-year employees worked in small medical offices in the California’s Central Valley for doctors who were well regarded professionally.

“However, being a competent physician does not mean that you are a good investor or that you should be in charge of employee retirement money,” observes Steve Smith, vice president of marketing at Pension Services Corporation in Pasadena.

“The stories these two nurses relate are far more common than most employees realize. These doctors clearly lacked the training, common sense and discipline required to be competent investors of money entrusted to them. The medical profession is one where you often find a dangerous combination of personality traits when it comes to investing: trust and a know-it-all attitude which is rarely challenged.”

Unlike law, for example, where lawyers learn to be skeptical of everything — clients included — physicians generally trust each other’s decisions and want to believe what their patients tell them. Toss in the need to be in control, and you’ve got a recipe for financial disaster. Pension administrators see this time and time again: employers who have lost millions of dollars of retirement plan money simply because they did not even know what homework they should have done, failing to adequately follow sound investment practices, Smith notes.

Be informed: read plan documents and statements

Something else contributes in a big way to the loss of money which might have been avoided if the employees were more involved.

“There is often a shocking lack of interest in what is being done with their money — in a 401K where they contribute along with the employer, or where they do not, as with a profit sharing plan — and that is usually combined with the fear of asking questions,” Smith notes.

“Many employees do not even know what kind of a plan their office has set up or bother to review quarterly or yearly statements which reveal their vested amount and how it did over the preceding several months.

“When it comes to retirement security, none of us can rely on the assumptions we had about financial life. All kinds of benefits are being eliminated or reduced in private plans as well as Social Security and Medicare. We are going to have to pay more out of our pockets for what we thought would be there at no additional cost. These things mean a return to the days where people saved as much as they could for their later years.

“Please, never forget, we are talking about your money and when employers manage the investments, they have a legal duty to prudently do so, not taking unreasonable risks.

“Also, be aware that the Department of Labor has forced employers to restore losses caused by their failure to act properly. It’s a very good idea to spend time studying its websites to better understand your rights,” he suggests.

Always read the plan description, and review statements of the plan’s finances which federal law requires that you receive. If you cannot understand the numbers, schedule an appointment with a qualified financial advisor for help. In any event, you need to learn:

1. Where is the money sent? Morgan Stanley, Fidelity, Vanguard, etc.? This is important as you might want to do research on their reputation, financial strength and investment track record.

2. Regardless of who makes the investment decisions — you, in a self-directed 401K, or the employer in a profit-sharing plan — having retirement investments that are in one risk category only, such as high tech, is exposure to an unacceptable level of risk. This money should be at least in three different investment categories to create diversification, with different risk and return characteristics.

3. Were there large losses in the office profit-sharing plan? Politely talk with your employer and try to get information that way. But remember that your job could be at risk and you must act diplomatically, being careful to not suggest wrongdoing. As a sponsor of the plan and fiduciary, the boss has a responsibility to the employees.

Smith concluded our discussion with a warning to employers who would even dream of firing an employee who asked probing questions about retirement money:

“Federal law protects employees in these situations. You do not want the Department of Labor on your back!”

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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