It’s been several years now since Glenn Neasham, a California financial advisor, was arrested and convicted of selling an annuity to a woman who was later diagnosed with dementia. Although Neasham’s conviction was eventually overturned on appeal and his insurance license restored, he suffered extreme reputation damage and lost his insurance license, business, and home.
Neasham’s case sent shivers of fear across the annuity marketplace, in part because it appeared the State of California viewed these products and the agents who sell them with extreme prejudice.
However, with the passage of time, advisors have moved on to new concerns such as the imposition of a fiduciary standard on advisors who specialize in 401(k) to IRA rollovers. But are they now underestimating a threat that can still destroy their careers and even send them to prison? Perhaps, and for two reasons.
First, the state of California has expanded funding and made permanent the Department of Insurance’s Life & Annuity Consumer Protection Program. Enacted in 2004 in an effort to reduce what it perceived to be rampant annuity abuses, the initiative paid for consumer outreach and provided grants to local prosecutors to go after agents who defraud seniors. Clearly, given the state’s attempt to shut down annuity fraudsters (and those mistakenly viewed as such), California agents must sell annuities with great care. And if the state’s program spreads nationally, agents will need to revisit their sales practices to make sure they don’t fall prey to prosecutorial overreach.
Second, the incidence of Alzheimer’s Disease and related dementias is skyrocketing. According to the Alzheimer’s Association, one in nine people age 65 and older (11 percent) have Alzheimer’s disease. What’s more, about one-third of those age 85 and older (32 percent) have the disorder. Due to the aging of America, these statistics will only worsen over time. The Alzheimer’s Association projects the number of new cases to double by 2050. Bottom line for advisors: if you don’t have a protocol for preventing unwarranted prosecutions, now is the time to develop one.
What might this regimen look like? Your first line of defense is to become broadly familiar with the early warning signs of Alzheimer’s. According to the Alzheimer’s Association, there are 10 such signs:
- Memory loss that disrupt daily life, especially relating to recent events.
- Challenges in planning or solving problems or keeping track of monthly bills.
- Difficulty completing familiar tasks at home, at work, or at leisure. Seniors may get lost driving to familiar locations or have difficulty following an old recipe.
- Confusion with time or place, especially losing track of dates, seasons, or the passage of time.
- Trouble processing visual images and spatial relationships, resulting in difficulty reading or driving.
- Difficulties writing or speaking and being able to follow or join a conversation.
- Misplacing things and losing the ability to retrace steps, often accompanied with accusing others of stealing their possessions.
- Worsening judgment or decision-making, especially regarding financial matters or personal hygiene.
- Withdrawing from work or social activities due to difficulties following along.
- Changes in mood and personality, with increased incidence of confusion, suspicion, and anxiety.
Now, because prospects are strangers to you, you may have little opportunity to detect such signs. But some may become evident as you speak with the prospect. If you notice anything unusual, jot it down in your notes and then enter it into your CRM system later. If the prospective case develops, you may wish to involve other family members.
Heeding Alzheimer’s warning signs is just your initial defense. John P. Huggard, J.D., an attorney with the Raleigh, N.C. law firm of Huggard, Obiol & Blake, PLLC, urges advisors to go much further. “The best way to handle the issue of reduced mental capacity,” he suggests, “is to determine whether or not (he or she) has been involved in other transactions that… require mental capacity.” In a presentation at the 2014 MDRT Annual Meeting, Huggard recommended walking prospects through a screening form probing the following issues:
• The last time the prospect bought a car, boat, or other major purchase.
• The last time the person bought or refinanced real estate.
• Whether the prospect uses a computer.
• Whether the person uses ATM machines and/or credit cards.
• How well the person understands complex topics.
Huggard also recommends asking prospects whether they’ve ever been treated for Alzheimer’s or other dementias. He also suggests advisors have prospects certify in writing they’ve never been treated for mental incapacity. Better yet, advisors should have a family member attest to this fact.
Now, you might be wondering whether getting signed statements from prospects and family members is enough protection given people’s tendency to lie on insurance forms. Nick Palaveda, J.D., LL.M, an attorney with National Pension Partners in Sandford, N.C., agrees. Writing in ProducersWeb.com, he said it makes sense to ask prospects over the age of 70 for a statement of good health from their doctor. According to Palaveda, Medicare will pay for this service. Such a statement can also be useful to prevent family members from challenging a client’s will or estate plan.
If you’ve moved beyond the Glenn Neasham case (as Neasham himself is trying to), don’t relax yet. Recommending annuities to seniors will remain a touchy issue for years to come. To avoid regulatory or legal sanctions, as well aserrors-and-omissions insurance claims, watch for signs of incapacity and get the sign-offs mentioned above. Your career will thank you for it!
Harry J. Lew is Chief Content Officer at EOforLess. For more information on affordable errors and omissions insurance for low-risk financial advisors, visit E&OforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center