Tackling investment fraud against seniors; cracking down on equity-index annuities

Regulators and politicians seem to be paying a lot more attention these days to the problem of investment fraud involving seniors.

Should federal securities law have higher penalties when the those who violate the law prey on older people? That's what U.S. Sens. Herb Kohl and Bob Casey think. Here's a press release about their bill, which would add $50,000 to civil fines when securities law violations involve someone 62 or older. Of course, there has to actually be a federal investigation for that to apply and the perpetrator has to have some money to pay the fine.

The SEC also is looking more closely at one one of the biggest problems: the sale of equity-index annuities. The commission has proposed this rule, which would classify many of these annuities as securities, subject to securities regulation. These annuities are highly complex products with lengthy surrender penalties and are a subject of frequent investor complaints.

Kohl also is concerned about the use of misleading designations that create the appearance of adviser competency even though they involve very little work. He previously introduced the Senior Investor Protection Act (S2794), which involves grants to states to reduce fraudulent and misleading investment marketing to seniors.

Better hope you don't need long-term care

The cost of nursing home care is rising faster in the Tampa Bay area than it is in the rest of nation, according to a study released Monday by Genworth Financial, which sells long- term care insurance along with other financial products. Over the past five years, the cost of a private room in a nursing home has risen 24 percent in the Tampa Bay area, compared to 17 percent nationally. Costs are highest in Miami.

Here's what you'll pay per year in the Tampa Bay area: $77,212 for a private room in a nursing home, $33,124 for a private one-bedroom unit in an assisted living facility or $44,959 ($19.65 per hour for 44 hours a week) for a licensed home health aide.

Should some fraudulent insurance sales practices be a crime?

Florida CFO Alex Sink wants to make it a felony for insurance agents to forge signatures on insurance and annuity documents or trick people into swapping one annuity or insurance policy for another. But, as my colleague Jennifer Liberto wrote today, Sink blames Metropolitan Life for trying to block the bill's passage. In the story, Rep. Clay Ford expresses concern about sending more people to prison, claiming "we already have prisons filled with people who commit white-collar crimes." I'd call that statement extremely doubtful. The armed robber who steals $10 from someone on the street is far more likely to go to prison than the insurance agent who steals someone's life savings. So far no insurance agents have even had their licenses revoked for selling the EISA fraud.

Senate Bill 2082 also increases the penalty-free cancellation period on policies from 10 to 14 days.

Does our financial regulation need revamping?

U.S. Treasury Secretary Henry Paulson proposes an overhaul of the nation's system for regulating financial services, including banking, securities, commodities trading, insurance and mortgage brokerage. There's no question that the system we have now is outdated, but would consolidation result in more efficient regulation or just less regulation? As I wrote today, there's already a big debate under way. Consumer advocates are fearful that transferring power away from the states would mean even less oversight of brokers and insurance agents. Here's the executive summary of the plan and here's the whole thing for those who have time to read 200+ pages.

Paulson's proposals
• Set federal licensing standards and disclosure requirements for mortgage companies and mortgage brokers. Create a federal commission to evaluate state mortgage regulation.
• Give the Federal Reserve broader powers to stabilize markets, including authority to review private pools of capital such as hedge funds.
• Convert thrifts to national banks regulated by the Office of the Comptroller of the Currency, eliminating the Office of Thrift Supervision. Eventually consolidate all federal bank regulators.
• Let insurance companies choose whether they want to be regulated by a new federal Office of National Insurance or stay under state jurisdiction.
• Merge the Securities and Exchange Commission and the Commodity Futures Trading Commission. Eventually consolidate consumer protection and enforcement across all financial services.

Annuities can be tax time bombs

The tax deferral annuities offer is one of their big selling points. But people who buy them often don't understand that these investments carry negative tax consequences too. Today's column is about a couple (Keith and Dolores Cutler, shown here) who learned about one of those consequences the hard way. Here are some things you need to know about annuities and taxes:

Annuities and taxes

- Taxes are deferred as long as the money stays in the annuity.

- When an annuity is purchased outside a retirement plan (with after-tax dollars), withdrawals are partly taxable/ partly tax-free return of principal.

- Withdrawals are taxed as ordinary income, not capital gains, even when they are invested in stocks.

- Taxes may continue to be deferred in a direct annuity-to-annuity transfer between companies, known as a 1035 exchange.

- An heir who inherits your annuity is taxed the same as you would be. There is no step-up in basis at your death.

[Times photo]

Settlements available on some burial policies

African-Americans who bought "burial insurance" in the early 1970s or earlier from companies affiliated with Americo Life may be eligible for benefits under a settlement agreement with Florida, Texas, Georgia, California and Ohio. These are small life insurance policies that were sold to African-Americans at higher costs or lower benefits than they were to white customers. If you have one of these policies, and meet eligibility criteria, the company will add 25 percent to its face amount. Cash payments may be available on terminated policies. To find out whether your company is one of the ones affected by the settlement or to get a claim form or information, go to this Web site maintained by the Texas Department of Insurance.

Money question of the week: Should the U.S. share our hurricane risks?

Should we have national windstorm insurance or some other type of federal catastrophe fund? That's a hot topic for Florida politicians but more like a hot potato for those in other states. Times Business Editor Bob Trigaux wrote last week about the politics involved. In theory, if we have national flood insurance, we could have national windstorm insurance. What do you think? If you give your first and last names and city, your comment can be considered for publication in the Times.

New Medicaid rules for long-term care penalize gifts, reward people who buy insurance

Today's column takes a look at the new rules for qualifying for Medicaid in Florida. The primary goal is to make sure that the government doesn't pick up the tab for nursing home bills unless you really are poor. People who impoverish themselves by giving away assets will be disqualified (how long depends on how much you gave away). One way you can preserve more assets for your spouse or other heirs will be to purchase a new long-term care insurance policy that qualifies under the new "partnership program." Essentially you're allowed to keep assets matching the amount of benefits under the policy.

One note of explanation: The look-back period for transfer of assets is now officially five years rather than three. However, the longer period only applies to assets transferred after February 8, 2006, when federal law on the subject changed. Thus a three-year lookback will still apply until February 2009, when gradually it will be extended until it encompasses five years. Here's some discussion on this point. A five-year lookback is already in effect for asset transfers involving trusts.

Medicaid eligibility is administered by the Florida Department of Children and Families. Unfortunately, I've never found anyone there willing to discuss the subject with me. However, you might be able to get someone to answer your questions if you call 866-762-2237.

Here are the income and asset eligiblity requirements.

Money question of the week: Do we need PIP?

   What do you think about the state doing away with PIP (Personal Injury Protection) as a requirement for all drivers? Will you add to your other coverage as a result?

The requirement to buy PIP coverage will expire Oct. 1 unless the Legislature decides to extend it. Right now they're working on a deal to call a special session to do just that, but it's still not a guarantee. Opponents of PIP say it leads to fraud and people should have a choice about what coverage they buy. Proponents say it assures at least basic coverage for injuries and that without it, hospital emergency rooms will get stuck treating injuries with no reimbursement. What do you think? If you include your first and last names and city, your comments will be considered for publication in the Times.

This also is a good time to remember that PIP pays no more than $10,000 per person for car crash injuries. If you are injured in a serious accident, or are at fault in an accident that does serious injury to someone else, the bill certainly will be higher. In my column today, I look at the other types of coverage that pay for accident injuries.

Susan Antilla takes on Phillip Wasserman and "the # 1 retirement income planning firm in the nation"

A Tampa Bay insurance agent/financial executive is getting some national attention today from Bloomberg columnist Susan Antilla, but it isn't exactly complimentary. Phillip Wasserman, chief executive of Phillip Roy Financial Services in Clearwater, is described as a bully who is currently being investigated by both the Florida Department of Financial Services and the Florida Office of Financial Regulation. On its Web site the company says it speaks to 40,000 seniors a year through investment seminars. Wasserman is a former lawyer who resigned from the Florida Bar after being suspended. The St. Petersburg Times covered his dispute with the bar back in 1995 and 1996. I called his office and asked for his comment on her column, but he wasn't available.

Update: Wasserman's attorney, Anthony Battaglia, said the state has a "personal vendetta" against his client and Wasserman has filed formal complaints with the office of the inspector general regarding the conduct of the investigations. Wasserman called Antilla's column false, biased and unfair.

Another update: Wasserman called me to tell me more about his company. He said more than 800 representatives are now affiliated with him and that he's now a multi-millionaire and a major charitable donor.

CFO Alex Sink taking a look at Trans Continental situation

The Trans Continental investment scam revealed a serious weakness in the way Florida regulates insurance agents, Chief Financial Officer Alex Sink said Friday.

"Our laws are written as if we're back in the old days when insurance agents sold insurance and brokers sold securities," she said. "They're all basically financial services providers."

Sink heads the Department of Financial Services, which regulates insurance agents, and is one of four Cabinet members with jurisdiction over the Office of Financial Regulation, which regulates brokers and securities sales.

Sink will review oversight issues as she works on next spring's legislative proposals.

"My role and mission is to safeguard our citizens' money and their assets," she said. "Clearly we've got a situation that's been exposed in a very unfortunate way in which our citizens' assets were not protected. It's incumbent upon all of us to go back and try to figure out what went wrong, why it went wrong and is there anything we could have done as a governmental authority to have avoided it."

(This story ran in today's St. Petersburg Times on the front of the Money section, alongside my story about "Pearlman agents tricked many.")

(Photo credit: Alex Sink official photo)

Money question of the week: Should insurance companies be allowed to use credit scores to determine your premium?

Insurance companies say it works because people with low credit scores file more claims. But opponents say it isn't fair to charge two people with the same driving records different rates just because one has a lower credit score. Using credit-based scores has a disproportionate impact on minorities. For more details, see the post I had last month on this topic.

Now I want to know what you think because the Times' Sunday Money section is launching a new feature designed to get reader opinions in the paper and promote interactivity with the Web. Each week we'll post a question in the newspaper and on this blog, then publish a selection of responses the following Sunday. Responses to this qusetion will be published Aug. 12. One key difference from the normal blog format: You must include your first and last names and your city. Responses without them will be deleted from the question of the week post. If you are shy about posting to the blog, you can send me an email, but again you must include first and last names and city. We are hoping that you will give us your opinion, your personal experience (if relevant) or both.

I chose this first topic because it got a good response previously on the blog. If you were one of the previous posters, feel free to repeat your post here with your identification. 

(Photo credit: Getty Images)

Should your credit score have anything to do with your car insurance premium?

Tying car insurance coverage and rates to credit scores makes sense for the industry, but ends up hurting minorities. That's the rough conclusion of a new Federal Trade Commission study of credit-based "insurance scores". The commission said credit scores can be used to predict the number and frequency of claims. However, the use of credit scoring means African Americans and Hispanics pay more for their car insurance than Asians and non-Hispanic whites. Critics of credit scoring say it's simply not fair when two people have the same driving and accident record to charge one more based on late credit card payments.

Here's the insurance industry's take on credit-based insurance scores. Here's the critics' view. What do you think?

Organize your family records

Here's a new tool for organizing your family's financial, medical and other important records - and it's free. T. Rowe Price is offering the PC-compatible CD covering investments, credit cards, income, insurance, loans, property, medical information and estate and funeral planning. You can get it here or by calling (800) 538-2706.

(Photo credit: T. Rowe Price)

Senior insurance deals--not such a great deal?

Business Week recently had an interesting piece, "The High Price of Free Insurance" about investors trying to convince wealthy seniors to take out life insurance policies for the purpose of resellign them. According to this articles and others I've seen, promoters are offering inducements such as cars and cruises to people to take out these policies. Have any of you ever come across that in the Tampa Bay area? If you have, I'd appreciate it if you'd email me the details. I have seen solicitation letters, but that's about it.

If you've ever thought of taking out one of these policies for resale, I recommend discussing the details with a financial adviser (other than the one trying to sell you on the policy) to confirm that it's right for you.

What's this about health savings accounts?

Some readers have been intrigued about an article I wrote about tax law changes, especially improvements in Health Savings Accounts. Assuming President Bush signs the law passed last weekend, IRA investors will have a one-time right to roll over an IRA to a Health Savings Account. That means withdrawals from the IRA, which would have been taxable, will be converted to tax-free withdrawals if the money is used for health care costs. However, some of the people who are most interested in doing this are not eligible. Health Savings Accounts can only be created by people who are not on Medicare. They can be set up only in conjunction with a high-deductible health insurance policy (minimum deductible in 2007: $1,100 for individuals, $2,200 for families). You may be able to get such a policy from your employer or purchase it from an agent who sells health insurance. You then can get the Health Savings Account from an agent or from some banks (BB&T is one that recently created this option.) You can keep an existing Health Savings Account after you go on Medicare, but you cannot make new contributions to it. Here's one place to read more about HSA's. Here's information on the latest tax law changes.

(Photo credit: Getty Images)

Can I get more than $100,000 in insurance on my bank account?

Q. Can you have insurance on $100,000 in deposits at different banks?

A. Indeed you can. In fact you can have insurance on more than $100,000 in one bank. The key is how you set up the accounts. Your IRA accounts at one bank can be insured for up to $250,000. "Payable on death" and trust accounts can be insured for up to $100,000 for each beneficiary. These limits are all per bank, so when you open accounts at a second bank, you start fresh. The FDIC publication, Your Insured Deposit, offers examples of how to structure accounts.

How do I value my home for insurance?

Q. Where can I get a general estimate for construction costs per square foot?  Years ago, when we built our existing house, contractors had a standard rate they used for our area.  Is this still in existence?  I need an estimated idea of the worth of our house for insurance coverage.

A. I can't give you a general estimate, but I can point you to a tool for valuing your house for insurance. This Web site uses standards accepted by the insurance industry for estimating the replacement cost of your home.

A lot of the recent increase in housing prices is land cost rather than building cost. You don't want to insure the value of the land.

Desperately seeking homeowners insurance

Q. I read about Royal Palm Insurance Co. taking over 120,000 policies from Allstate. Will they write new policies as well? I need to find coverage. A. The company plans to write new coverage, but not until November. Application will be through Allstate agents. You can read more about this company in a story in today's paper.