Tobacco Farmers Warned About Scams

Source from:  By Frank Norton, RALEIGH NEWS & OBSERVER RALEIGH, N.C. 04/26/2005

Former tobacco farmer Charles A. Baker Sr., 73, listens closely as two Bank of America salesmen discuss some of the financial choices facing participants in the federal tobacco buyout program. Baker, who stands to receive about $25,000 from the government buyout, says he is eager to learn about various options but remains cautious with respect to people offering to manage his money. As tens of thousands of North Carolinians await sizable payouts from the buyout program, many are being solicited by bankers, brokers and insurers who are lining up to shepherd their money. While most offers are legitimate, farmers should exercise care to avoid scams, experts say. And they also need to weigh options carefully — considering the tax consequences of investments, for example, and whether to take the money up front or over time. "We're about to see the largest sluice of money to ever enter the state, and financial institutions are vying for the wealth management business that it will create," said Blake Brown, a tobacco economist and professor of economics at North Carolina State University. Financial intermediaries are positioned to profit from the windfall by offering advice on payment and investment options and various other services. Some companies are hosting invite-only lunches and dinners to educate tobacco stakeholders on various investment plans. Others are pitching product lines to financial resellers, such as financial planners. Some, such as Bank of America, are co-hosting info-marketing sessions to introduce potential clients to brokerage services, annuities and retirement and estate planning. The federal government plans to reimburse tobacco growers and quota holders as much as $9.6 billion over the next 10 years for scrapping the system of quotas and price supports that once shielded the industry from foreign competition. About $3.8 billion of the federal buyout money is earmarked for North Carolina's 76,000 growers and quota holders, some of whom are in line to receive millions. "We want to make sure we can offer products of value to these farmers and quota holders," said Barbara Thompson, a spokeswoman for First Citizens Bank. The Raleigh, N.C.-based company is mailing letters, placing ads and holding dozens of lunches and dinners to meet and greet the largest recipients in the program. Thompson said she couldn't discuss specific new products because federal regulators are still finalizing tax rules for the program. For now, the company is trying to position itself as the financial intermediary of choice for participants in North Carolina, Virginia and West Virginia. SunTrust is also sizing up the market of buyout participants and will this month begin mailing out marketing literature to stakeholders in North Carolina and follow up with sales calls and info-marketing seminars next month, a spokeswoman for the Atlanta-based said. Wachovia, based in Charlotte, is planning similar efforts and expects to launch tailor-made investment products in the coming months. Meanwhile, USAllianz Investor Services is marketing its own brand of buyout-related investment plans through about 1,200 financial planning firms in North Carolina, said Ed Oberholtzer, national sales manager. "Our distribution model is centered on using other financial intermediaries," Oberholtzer said. He said the company provides various compensation levels for financial planners that sell USAllianz insurance policies, annuities and other investment services. "Our products fit well with the group of people in this buyout pool," he said. Several financial planners in the Triangle say they have already been visited USAllianz sales people promoting buyout-focused products. James W. Narron, a tax attorney in Smithfield said dozens of insurance agents, financial planners, brokers and bankers are calling regularly to discuss ways to market their services to participants in the program. N.C. Secretary of State Elaine Marshall is urging caution for all buyout participants. "Money is a magnet. If you've got it, some crook is going to try to separate you from it," she told a gathering of black farmers in Raleigh last week. Many growers and quota holders say their biggest need is for money up front to pay off debt, invest in other businesses or retire comfortably. Large financial companies are responding with arrangements to pay them lump-sums up front in exchange for their 10-year stream of payments from the government. "I'd rather get the money now," said Baker, who lives in Fuquay-Varina. "I'm 73. It will do me a lot more good now than it will 10 years from now," he said last week at a meeting in Raleigh organized by the National Black Farmers Association. Experts warn that lump-sum payouts may be costly, confusing and financially not worth it for some stakeholders who do not have immediate cash needs. Those who decide they do, however, may benefit, as long as they consult with a third-party financial planner before signing any deal, regardless of the company promoting the offer, experts said. "We can't overemphasize the importance of sitting down with a tax preparer to forecast the consequences of your actions," said Brown, who teaches economics at North Carolina State. "My advice: shop around and deal only with people you trust because a lot of companies are going to be rolling out products," he said. Enditem