Annuity check fraud: What advisors should tell clients

Annuity checks can help support a client’s retirement but only when they’re able to access the funds.

“It may seem old-fashioned in the age of AI, but check fraud is once again in vogue—and annuity checks are no exception,” said Diana Rothfuss, director of Global Strategy and Innovation, Risk, Fraud & Compliance Solutions at SAS.

According to Rothfuss, criminals are targeting large checks from insurers and financial institutions.

They’re using everything from altered checks to completely counterfeit business checks. It’s no surprise that such schemes are forcing banks to examine check deposits with increased scrutiny.

How often does check fraud happen?

Check fraud for large annuity checks is common enough that it creates real tension between banks, insurance companies, and customers.

According to Angie Welsh, founder and president at My Annuity Agents, this doesn’t happen because banks mistrust annuity providers. It arises because large annuity deposits are out of the ordinary for most clients.

Additionally, annuities are often paid to an elderly clientele, and many financial institutions take extra precautions to ensure that elderly clients aren’t victims of fraud.

“The challenge is that every institution is working with different fraud detection systems. They don't use the same data and technology or rules and risk parameters. One bank might flag a $50,000 annuity check, while another would simply deposit it without a moment's pause,” explained Rothfuss.

Whether the check gets rejected or is just held for review becomes a significant pain point for an annuity customer, as they’re often counting on that money.

“That's exactly why having a robust customer profile built on good data is so critical for banks. It helps prevent these situations before they happen,” added Rothfuss.

What advisors can do

Fortunately, just a few simple steps can maintain client trust and manage fears about a hold being placed on an annuity check.

• “Have your client notify their bank in advance that a large annuity check is coming, including the amount and the source. Proactive communication with the bank can prevent a lot of needless friction,” said Rothfuss.
• Also, encourage clients to choose a bank with a longstanding history and participate in electronic transfer whenever possible. With check fraud on the rise, direct deposits eliminate the risk of checks being stolen or altered in transit.
• Electronic transfer is also the surest way to avoid false positives and ensure the timely availability of funds in the client’s account. If a paper check is unavoidable, however, make sure your client knows to bring proper documentation and identification when they visit their branch to deposit it.
• Speaking of in-person visits, Welsh recommends using them as an opportunity to show the bank an annuity contract before a client makes a deposit. This is a simple way to prevent long holds or flags.

“Don’t forget to assure your client that a hold doesn't mean the bank is accusing them of anything—they’re simply protecting their money,” said Welsh.

Ultimately, a bit of preparation and education can help expedite the verification process and ensure clients receive their annuity funds they’re entitled to without any hiccups.

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Anna Baluch is a finance reporter and writer with more than a decade of experience. Contact her at [email protected]