Dr. Robert Frank Mansueto: “Guaranteed growth rate.” Hmm...

Forbes columnist Ken Fisher proclaims, “I hate annuities.… The contracts are huge, obtuse, confusing and hence rarely read. Sales reps rarely realize the lies they peddle.” Sales commissions can be 8 percent or more, says Fisher, who compares some annuities with Ponzi schemes.

Senator Elizabeth Warren has gathered information on sales incentives for “indexed” annuities, which are tax-deferred savings vehicles, issued by insurance companies, whose returns are tied to a financial index, such as the Standard & Poor’s 500. The indexed annuity is “widely known within the industry for the perks available to agents,” says the Wall Street Journal. Experts say such annuities have “serious limitations on the upside potential” and are “controversial because of the many ways consumers can misunderstand” them, says the Journal.

Senator Warren wrote to insurance companies, demanding information on the incentives for indexed annuity sales representatives, such as touring “the Mediterranean on a private yacht, like royalty, celebrities, and the wealthy elite,” as put forward in some marketing materials.

A curious ad has been running in the Union-Tribune in recent months. It touts a “guaranteed growth rate.” And “checkbook access.” And “25% deposit bonus for IRA/401k/CD transfers.” And “10% deposit bonus on new savings accounts.”

Hmm... Those words “deposit” and “new savings accounts” suggest this is a bank offering a savings account netting returns of six times what other banks are paying. The ad was placed by Exalt Financial & Insurance Services, on Camino Del Rio South.

“The language of the ad appeared to offer some kind of CD [certificate of deposit] or bank deposit since it includes the words ‘deposit,’ ‘savings accounts,’ and ‘checkbook access,’ which would indicate that the offer was for a bank deposit or CD,” says Steven Kane, who recently retired after 40 years of practicing law (and unraveling some notable scams) in San Diego. He continued, by email, “Also, the offer includes the phrases ‘guaranteed growth rate’ and ‘guaranteed growth,’ which could be interpreted as a promise the investor cannot suffer a loss. We all know there is no such thing as a risk-free investment. Finally, the ad promises to give the investor a ‘bonus’ of 10 or 25% on his or her invested capital. Any investment which offered such high immediate appreciation today in the era of 1% or less rate on bank CDs would, indeed, be extraordinary.”

I sent a copy of the ad to Mark Leyes, a spokesman for the state Department of Business Oversight. “To guarantee a return is a red flag consumers should be aware of,” said Leyes. “Any potential investor should ask and has the right to know what is the source of [the] returns.” Leyes then took the ad to an executive in enforcement. “We are reluctant to declare it legal or illegal without understanding more details. But she agrees with me that statements such as ‘guaranteed growth’ and ‘no losses’ are red flags, since it is nearly impossible to back up such assertions.”

I called Exalt Financial and talked with its owner, Dr. Robert Frank Mansueto, who spends 60 to 70 percent of his time helping doctors and dentists reduce their taxes and the rest of the time selling single premium, fixed, indexed annuities. That means that the customer pays an amount of money up front, the insurance company guarantees to make payments beginning at some date, and the annuities are indexed, mainly to the Standard & Poor’s 500. I checked with the Department of Insurance: Mansueto has a license and a list of impressive insurance companies he works with.

He is ebullient. “There is no risk to the consumer, guaranteed growth. No consumer has ever lost a nickel. It is all upside, no downside. There is no risk of loss if the market crashes,” he enthuses, and there is a tax advantage.

After I asked him a few questions, his answers were less all-inclusive. One problem with annuities is that if you want to get your money out early, you pay a huge penalty. “I am not aware of anybody who has ever been hurt, except for those who want [their money] back,” he says.

There is another big problem: the policies are very complex. Customers have to understand any contingency that could cause them to lose their principal. And then there is something that many people these days have forgotten about, or never experienced: inflation. It could erode purchasing power of those dollars handed out by the insurance company. “I have no control over that,” snaps Mansueto.

Also, insurance companies cap the amount of gain the customer captures. The Standard & Poor’s 500 may go up 10 percent, say, but the client gets only 3 percent.

Another critical factor is the reputation of the person selling the policy. On this measure, Mansueto flunks. Originally, he was a dentist, specializing in implants. In 1993, the state Board of Dental Examiners placed him on five years’ probation and suspended him from practice for 60 days for altering the dental records of a patient who had sued him. Mansueto did that “with intent to deceive,” said the board, noting that Mansueto had also lied under penalty of perjury.

In 1999, after he had been disciplined again and was still on probation, the board cited its “profound concern” about his “dishonesty.” The board is “left with the feeling that Dr. Mansueto still thinks there is something relative about the truth and that it can be fashioned for the occasion,” said the board.

In 2005, the Dental Board of California (the current name for the Board of Dental Examiners) revoked Mansueto’s license. That has not changed. In this instance, Mansueto was charged with “serious and substantial” violations of the Dental Practice Act for negligently mishandling three patients.

In revoking his license, the board also noted that Mansueto in the year 2000 had advertised in the Union-Tribune that people suffering from migraine headaches should try his “revolutionary new approach for the successful treatment of migraine headaches.”

“A licensed dentist cannot diagnose or treat a true migraine headache,” said the board. Mansueto’s newspaper ads “contained false, fraudulent, misleading and deceptive statements.” Mansueto refuses to speak about his run-ins with the board.