Is a Code of Ethics Effective?

In document Selling Annuities to Seniors (Page 102-110)

Many people react that codes of ethics, or lists of ethical values to which the organization aspires, are rather superfluous because they represent values to

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which everyone naturally should aspire. However, the value of a code of ethics to an organization is its priority and focus regarding certain ethical values in that workplace. For example, it is obvious that it is desirable for all people to be honest. However, if an organization is struggling around continuing occasions of deceit in its industry, placing a priority on honesty is very timely, and honesty should be listed in that organization's code of ethics.

A code of ethics is an organic instrument, and often changes with the needs of society and the organization.

The Bottom Line

History is made and lives are changed, not by those who follow the crowd, but by those who are prepared to take the ultimate risk and stand up for what is right.

It is always a challenge to do the right thing in a competitive environment. But each time we make a decision to stand for what is right; even if it costs us something, we reinforce our own moral character and influence others.

We do not develop that ability overnight. It is developed in small steps as we do the right thing each day. Unfortunately, many of us do not even recognize the opportunities that exist.

Things which matter most must never be at the mercy of things which matter least. - Goethe

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Quiz 8

1. Traditionally, senior investors have looked for ________ investments. (Lesson 8: Risk and the Senior Client)

A. Secure B. Risk bearing C. Tech-stock linked

D. Accelerated growth focused

2. While discussing annuities with a perspective senior client, you notice it takes her a moment to recall information about her work experience. Later on, you sense that she is not comprehending the annuitization requirements but she says nothing. It’s time to sign the contract: what should you do in this situation?

(Lesson 8: Selling to Seniors)

A. Give her additional literature to read over at home B. Not offer her a contract

C. Assume that since she didn’t ask any questions, you were wrong about her comprehension of the contract

D. Offer her a contract

3. The age bracket where pre-retirement planning takes precedence for

investment goals is generally considered to be: (Lesson 8: Pre-Retirement and Post Retirement Planning)

A. 20-30 B. 30-40 C. 40-50 D. 50-60.

4. The age bracket where post-retirement planning takes precedence for investment goals is generally considered to be: (Lesson 8: Pre-Retirement and Post Retirement Planning)

A. 20-30 B. 30-40 C. 40-50 D. 50-60

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5. People act ethically out of concern for _____ rather than _______.

(Lesson 8: Ethical Considerations.) A. themselves; others

B. others, themselves C. co-workers; competitors D. family members; strangers

6. Which age bracket is considered to have the highest disposable income for investments? (Lesson 8: Pre-Retirement and Post Retirement Planning)

A. 20-29 B. 30-39 C. 40-49 D. 50-59

7. Seniors do not frequently change their investment patterns after retirement because: (Lesson 8: Pre-Retirement and Post Retirement Planning)

A. They do no have enough funds for investment B. They do not find many opportunities to invest C. They are pre-disposed to taking risks

D. They are risk averse

8. The government-sponsored program which has the premise of supporting seniors once they retire is known as: (Lesson 8: Financial Concerns)


B. Federal Aid for Seniors C. Social Security


9. All of the following are indicators of short term memory loss except: (Lesson 8:

Concerns for Seniors)

A. Misunderstanding procedures B. Sudden chances in emotions C. Frequently dropping items D. Loss of judgment abilities

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10. The PTP factor in terms of ethics is defined as: (Lesson 8: The Challenges in Ethics)

A. Person to Person: The network of ethical agents who induce others to act ethically

B. Person to Price: The value a company gains by hiring people who are strong in ethics

C. Price to Person: The value a person gains by joining an ethical company D. Price to Pay: The willingness to lose money for ethical reasons

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Quiz 8 Answers

1. (A) The senior client needs to have a clear view of what risk they are taking against the expected returns. Typically, seniors look for security for their money rather than quick returns with risky investments, but recently seniors have shown interest in growth-focused funds as well.

2. (B) There are two signs in this exchange that should raise a red flag to the annuity seller: memory trouble and lack of comprehension. It is illegal in California to enter into a contract with a person of unsound mind or someone exhibiting symptoms of Alzheimer’s or dementia. In a situation like this, it would be unacceptable to offer her a contract if you suspect she didn’t fully understand the ramifications of it. The ethical thing to do would be not to offer her a contract;

this protects your liability down the road of her beneficiaries, estate or guardian question your contract.

3. (C) Pre-retirement planning typically takes the greatest priority for investments when a person is between the ages of 40 and 50. Though individuals between the ages of 20-40 may be beginning their retirement investing through work-sponsored 401(k) programs and the like, they are usually considered too early for detailed retirement planning. Persons in 50-60 age bracket should be looking towards post-retirement income planning, and should already have provisions in place to secure their retirement future.

4. (D) Post-retirement planning takes the greatest priority for investments when a person is between the ages of 50 and 60. Ages 20-30 and 30-40 are considered too early for retirement planning and investment there is focused on growth, while persons in the 40-50 age bracket are looking towards pre-retirement planning.

5. (B) People act ethically out of concern for others rather than themselves.

Ethics deals with the ability to distinguish right from wrong, good from evil, and propriety from impropriety - and the commitment to do what is right, good and proper. Simply put, ethics consist of those things we make ourselves do, no matter what, and those things we will not allow ourselves to do, no matter what.

6. (D) Since the highest income level is normally achieved by persons close to retirement, they normally use those years to finalize their retirement investments.

7. (D) After retirement, a person may have more time to play around with their investment money but may not have enough reason to do so since the risks associated with changing investment patterns are high enough to prevent seniors from drastically changing their investment patterns. It is not typically for lack of funds or investment opportunities that seniors don’t change their investing patterns, but because seniors are not pre-disposed towards taking risks.

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8. (C) Social security is the government program that has the fundamental premise of supporting the nation’s senior citizens to some level once they retire.

However, amid rumors that Social Security will be bankrupted over the next quarter-century, many seniors are looking for additional retirement vehicles.

9. (C) The major indicators of short term memory loss that affects daily living are, problems with communications, frequently misunderstanding procedures and ordered tasks, poor judgment, losing things of everyday use, sudden changes in emotions or behavior and a sudden loss of interest in life itself. Frequently

dropping things may indicate a loss of motor control but not memory loss.

10. (D) The willingness to lose for the right reasons is the price to pay (PTP Factor) for leading an ethically-based life. People in positions of power, motivated to "win at all costs," often have great difficulty with this challenge. There is often a price to pay for leading a more ethically-based life; fortunately, in the long run, the rewards are also greater.

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Lesson 9: Sales Practices for California Insurance Agents


A recent case exemplifies the need for stricter guidelines for senior sales. A senior couple purchased a high-priced annuity where benefit payments would not start until a minimum of 10 years had passed. At the time of purchase, the

gentleman was 83 years old; his life expectancy stood at 81 years. On their behalf, a class action suit was filed against the agent who sold the annuity and the insurance company that approved the sale for inappropriately targeting and selling annuities to seniors. The lawyers for the prosecution have posited that the vast majority of seniors who are sold annuities in California are cheated. This and many other cases have compelled the seniors and senior organizations in

California to call on the government to enact stricter rules for annuity selling practices towards seniors.

The North American Securities Administration Association places annuity-related fraud amongst the top ten frauds used to steal money from unsuspecting

investors. The schemes and practices are becoming increasingly complex and a battle rages between the law makers and the law breakers. Unethical agents come up with new methods and means to swindle the public, who often do not realize that there is no investment opportunity or method which carries “no risks”

and is “completely tax-free.” Regulators and the insurance departments of

various states have enforced the applicable rules and punished those agents and persons involved in such businesses.

Clients in general and older citizens in particular are baited with guarantees of reduced taxes and probate expenses using misleading sales tactics. Unethical agents offer free financial and legal advice when they have no authorization to give out such advice, and heavily suggest that their client should invest in annuities. Some of the agents do not even mention that they are insurance sellers to begin with. The federal government has called trust mills a fraudulent way to steal the cumulated savings of the seniors in individual states. Often, the seniors do not even require the annuity or the trust to preserve their estates.

An estimated 4 million people, nation-wide, have paid for living trusts which they don’t need.

Generally, it is recommended that people whose assets are worth more than

$100,000 should look into trusts and seek the advice of a reputable attorney or a qualified financial advisor. Although these advisors and attorneys may hold legitimate seminars and discussions on how a person can avoid probate, non-qualified insurance agents posing as financial consultants use scare tactics and pressure methods to convince the elderly population that annuities will protect their financial situation as they get older. A client who attended one of these

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seminars ended up paying $15,000 in commissions to an advisor who recommended the liquidation of bonds to buy annuities.

Due to litigation, the Alliance for Mature Americans had to refund $130 million to the people who were sold high-priced annuities using illegal methods.

State insurance officers and district attorneys have pursued several criminals who have engaged in such practices. An insurance agent, who was conducting these seminars in a church, was sent to jail for three months, ordered to pay

$16,000 to the seniors affected by the agent’s actions, and was ordered to desist from conducting any more seminars. Similarly, an agent convicted of elder

financial abuse and theft had defrauded 30 seniors and had taken more than

$700,000 from them illegally.

Variable Annuities

While variable annuity sales have been rising in California, complaints from investors, especially seniors, have also risen in the same proportion. Most of the people making the complaints have said that they were not informed about the associated surrender charges and were never told about the commissions for the agents associated with variable annuities. In fact, many complained they were misled to believe that the variable annuity comes with a high guaranteed

minimum return and the volatility in the stock market does not affect them at all.

The seniors further said that although the agents were forceful about the benefits associated with annuities (tax-deferred earnings, death benefits, etc.), they did not mention the costs associated with those benefits.

Variable annuities in particular are useful for investors who have the ability to lock up their capital for a decade or more, but they might not be so suitable for a senior with immediate or future needs for cash. Several states have moved to make variable annuities subject to the same regulations as other securities. That would help to make the laws applicable to selling variable annuities more


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In document Selling Annuities to Seniors (Page 102-110)

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