Objective information about financial planning, investments, and retirement plans

That Nice Man at Church Wants to Sell Me a ….

Share
My point here is that just because you and a financial product sales type attend the same church or are both members of the same Rotary club doesn’t mean that the financial products or services this person is selling are right for you. English: Bernard Madoff's mugshot

My original inspiration for the above tweet was a pro bono financial counseling event in which I participated about 15 years ago.  I counseled a young couple with two young kids.  A registered rep from their church had sold all four of them a variable annuity product.  For the life of me I can’t come up with a good reason for a 7 and a 9 year old to buy a variable annuity policy. I was trying to be diplomatic in my answers when the wife said to me “…we really got _____ed…”  It was hard to disagree.

On a positive note, a client once asked me to review a long-term care insurance policy they were considering that was offered by an insurance company affiliated with their religious persuasion.  The policy had excellent features, the company was solid, and the price was competitive.  They purchased the policy.

Here are a few examples of affinity fraud from a Wikipedia article on the subject:

  • “Baptist investors lose over $3.5 Million”: The victims of this fraud were mainly African-American Baptists, many of whom were elderly and disabled, as well as a number of Baptist churches and religious organizations located in a number of states. The promoter (Randolph, who was a minister himself and who is currently in jail) promised returns ranging between 7 and 30%, but in reality was operating a Ponzi scheme. In addition to a jail sentence, Randolph was ordered to pay $1 million in the SEC’s civil action.
  • On November 16, 2007, Michael Owen Traynor a Bradenton, Florida, investment broker, who had found many of his clients though his church and private school social circles, was arrested on a first degree felony grand theft charge that he had stolen $6.5 million from his investors. It is believed Traynor stole funds from at least 34 clients in Sarasota, Manatee and Hillsborough counties between 2001 and February 2007. Traynor was subsequently sentenced to 12 years in Florida state penitentiary.
  • “125 members of various Christian churches lose $7.4 million”: The fraudsters allegedly sold members non-existent “prime bank” trading programs by using a sales pitch heavily laden with Biblical references and by enlisting members of the church communities to unwittingly spread the word about the bogus investment.
  • On December 11, 2008, Bernard Madoff, an American businessman, was arrested on charges of securities fraud, having been turned in by his own sons after allegedly telling them his business was a “giant ponzi scheme“. According to the New York Post, Madoff “worked the so-called ‘Jewish circuit’ of well-heeled Jews he met at country clubs on Long Island and in Palm Beach.”. Additionally, one of Madoff’s middlemen was J. Ezra Merkin of Ascot Partners. According to Samuel G. Freedman of the New York Times, Merkin was prominent in the Modern Orthodox community. This allowed him to defraud institutions such as Yeshiva University,Kehilath Jeshurun Synagogue, the Maimonides School, Ramaz and the SAR Academy. 

Should a religious or other affinity connection disqualify a prospective financial advisor?  Of course not.  However, this affiliation should not serve to give an advisor or a financial product a free pass either.

In all cases, verify then trust.  Check out the advisor and/or the company behind the financial products you are considering.  Put them through the same rigor you would if the affinity connection was not there.  Tragically there are people who prey on the trust and validity that can come via an affinity connection.  Don’t be another victim of affinity fraud.

Enhanced by Zemanta

If you enjoyed this article, please enter your email address to receive the latest updates about financial planning, investments, and retirement plans.

Comments

  1. Anonymous says:

    Very provocative title. It seems that this is more about the insurance that one person is selling vs. where they come from. Concerned about your bias.

  2. Thanks you for your comment and for visiting the site. I think anyone who is a regular reader of this blog or who follows me on social media knows about my bias towards the delivery of fee-only advice and towards adoption of a fiduciary standard. Guilty as charged re my bias.

    However, the point I wanted to get across here was that a religious or other affinity affiliation is not a good reason in and of itself to do business with a financial person or to buy a particular financial product. People need to do the same due diligence as if that affiliation didn't exist.

  3. Thanks for this entertaining and informative post, Roger. As you note, we must be attentive regardless of where we encounter a salesperson. "Nice" is nice but that isn't enough.

    Be definition, most salespeople are close to average. Some have passed their "Best Before" dates. There can also be biases if you buy where you work, invest or bank.

    Buyer beware.

  4. Rick Ferri says:

    My wife's family was nearly bankrupt by an insurance agent who gave a seminar sponsored by their church. He sold them a life insurance policy where the commission alone was more than their entire liquid net worth. He convinced them that my ailing father-in-law would be dead before they ran out of money, thus this was a great investment. We sued and settled under the stipulation that we could not talk about the suit with other church members.

  5. Rick thanks for sharing this story. I never cease to be amazed by the lengths some financial sales types will stoop to in order to make a buck, in this case regardless of who might get hurt. I also never cease to be amazed by the number of affinity fraud cases out there.

  6. Very good story and very good point; I don’t see any bias at all. Though it wasn’t related to insurance, my wife brought a guy home to work on our roof many years ago because he came up to her in a store and she said he was so nice and seemed concerned about our lack of knowledge at the time in trying to get it repaired. So we hired this guy and 3 weeks later not only did he NOT do the job I was expecting but she came home and found him walking around in our basement. Lessons learned; you have to check people out and you have to check out what they do to protect yourself.

    • Roger Wohlner says:

      Mitch thanks for your comment and I couldn’t agree more. While I’m focused on this issue from a financial services point of view it certainly extends to almost any type of service provider you might need to hire.

Speak Your Mind

*

Current ye@r *