A WAKE UP CALL TO BANKS ABOUT THEIR OLDER DEPOSITORS Part 2 OF A 3 Part Series

Maturing consumers are the wealthiest; best educated and most sophisticated purchasers of any age group. Those over age 50 now control more than 70% of the total net worth of American households. They have more discretionary income than any other age group. The data shows that discretionary income rises and reaches its peak in the fifty-five to sixty-four-age bracket. Also people age 65 can expect to live 16 – 19 years longer.

Maturing consumers own 80% of all money in savings and loan associations, but they do not hold the same feelings of loyalty to their bank, or to any brand for that matter, than previous generations once did. And this trend is getting stronger.

Maturing consumers are, quite simply, the most significant market for financial products and services. This group deserves some special attention. But banks have to understand what is important to them first.

Caring for the elderly touches virtually every family both emotionally and financially. It usually involves at least two generations and sometimes three. The personal and financial events that arise are often the most difficult a family ever faces. Just one year of long term care costs can exceed twice the annual tuition at America’s most prestigious colleges. Despite this harsh reality, families are far more likely to plan for college than for long term care.

By providing quality senior market products and services such as long-term care insurance, reverse mortgages, and annuities that are suitable for the older depositor, including new annuity products that are specifically designed to pay for long-term care costs, a bank, can build closer relationships with maturing multi-generational families.

But banks are not getting it! They are standing by dumbly staring at the growing parade of “lone rangers” who are aggressively pursuing bank customers to sell them the above-mentioned products at the kitchen table. These so-called “independent brokers” typically work from a home office, with none of the accountability that bank employees have. As numerous articles in major newspapers and other publications have illustrated, these “lone rangers” are a rogue network of predators who will sell the older consumer whatever pays them the highest commission, whether the product is suitable for the consumer or not.

With the aging baby boomers and their often very elderly parents representing the lion’s share of deposits in most banks, why don’t banks wake up and pay more attention to these critical customer segments.

If banks don’t get their act together soon they will continue to lose deposits. If they make the effort to implement a well designed, comprehensive program of educating their older customers about the importance of planning for the potentially catastrophic costs of care in old age, they will not only preserve their customer base but will see a substantial increase in attractive new depositors resulting in improved profitability. In fact, the rapidly shifting financial services marketplace is likely to penalize those banks that are not well positioned to address a broad range of planning issues faced by the bank’s maturing depositors.

A "Wake Up" Plea to Banks: Protect Elders from Financial Abuse and Help Your Bottom Line at the Same Time PART 1

Which setting is more suitable for a major financial decision in retirement, a bank or at the older person’s kitchen table?

A 67 year old, divorced, woman, worried about her job, had a saleswoman who showed up at her door and she let her into her home. Sitting at the woman’s kitchen table, the saleswoman recommended a reverse mortgage loan of $218,900, with a variable interest rate initially set at 6.57 percent. The saleswoman did not explain that within 10 years, the $218,900 loan could grow to as much as $400,000.

The same saleswoman then pressured her to put the proceeds of the loan into complex investments that put her money out of reach. She received only about $33,000 in cash, far less than she needed for her final years.

“I thought this was a safe way to make sure I’d never run out of money,” the older woman told a reporter for the New York Times. In an article published in the Times on Sunday, March 2, 2008, the victim of this scam told reporter Charles Duhigg “Then everything became so confusing. No matter where I turned for help, it seemed like things got worse.”

According to the Times article the salesperson who exploited this older consumer works for a company which is licensed in 16 states, and has originated mortgages worth more than $100 million since 2004. If the borrower had sought this loan through a savings bank or credit union where suitable consumer protection and oversight of the bank employee was in place, many of the loans would not have been made. But other, more suitable, alternatives would have been reviewed with the borrower resulting in new business for the bank and a satisfied customer to spread the word about why the bank is the best place to go to discuss financial alternatives for older people.

For many elders, especially those who want to stay in their home as long as possible, a reverse mortgage can be a very suitable financial transaction. Despite the eligibility age that the federal government has set at 62, these federally insured loans are rarely suitable for those in their 60’s…or their 70’s for that matter.

For those in their 80’s who have grown frail and require services such as a home health aide, a reverse mortgage can be the difference between staying at home and moving into a nursing home according to elder advocacy organizations such as AARP and the National Council on Aging. Visit the Council’s web site at www.ncoa.org to get their excellent free handbook on reverse mortgages “Using Your Home To Stay At Home “


According to the Times article, as the United States has become an older nation, reverse mortgages have grown into a $20-billion-a-year industry, with elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier.

“In surveys, many borrowers say reverse mortgages have improved their lives and provided the money they needed for retirement. But hundreds of people who have sought reverse mortgages – in lawsuits, surveys, and conversations with elder-care advocates – have complained about high-pressure or unethical sales tactics they say steered them toward loans with very high fees. Some say they were tricked into putting proceeds of their loans into unprofitable investments, while sales agents pocketed rich commissions.”

The Times quotes Prescott Cole, an elder-care advocate who has worked with reverse mortgage borrowers “Every scam artist is getting into this business,”. “Because reverse mortgages are so complicated and give you money up front, years can pass before a senior realizes they’ve lost everything.”

In Part 2 on Wednesday I'll discuss the role banks can play to end the growing epidemic of financial scam artists with bogus credentials who prey on older Americans.