The Financial Industry Regulatory Authority (FINRA) recently issued a report outlining is its regulatory and examination priorities for 2012. The securities industry regulator is focusing on conduct and products meant to beat the market that are unsuitable investments for many investors.
Given the array of exotic alternative investments being sold to the public, it’s logical that many investors often don’t understand what they are buying. What is even scarier is that it is likely their professional investment adviser doesn’t understand the alternative investment either. Investment advisers – 75 percent of them – admit they do not understand alternative investments. Notwithstanding their puzzlement, 50 percent of advisers said they intend to increase their use of them in their clients’ accounts this year. They could use some help, however, because of alternative investments are so confusing. (“Alternatives spur anxiety,” InvestmentNews).
Variable annuities are complex financial products designed to transfer the risk of market loss from the investor to an insurance company. Assuming the investor is risk averse (after 2008, who isn’t?), the question is, is it a good deal? The answer, according to MONEY Magazine and most advisers that do not sell variable annuities for a living, is no. (“No Pot of Gold,” Lisa Gibbs, MONEY Magazine). Whether the answer is yes or no, an investor needs to be an actuary as well as a competent, very careful reader of fine print and convoluted legalese to fully understand exactly what he or she is buying, how it is priced and whether or not it is a good deal. Most investors are not up for that job.
Continue reading "MONEY Magazine - Variable Annuities Aren't Worth the Cost" »
Preparing for retirement should include preparing for the risk of diminished mental capacity, according to noted financial writer Jane Bryant Quinn (“Losing Your Grip?”). It is an unpleasant fact of life that, as we age, we become less competent to make financial decisions. A 2009 study on financial decision-making found that this ability peaks at age 53 and declines thereafter, according to Ms. Quinn’s article. Another study at Texas Tech University revealed that what we lose 2% of what we used to know about financial matters each year after age 60, but, paradoxically, we gain confidence as we lose this knowledge. All of this makes us vulnerable to serious financial errors and even fraud, according to Ms. Quinn.
Continue reading "AARP Article Urges Seniors to be Vigilant in Watching Out for Financial Scams" »
Financial industry lobbyists know that money is the key that opens doors on Capitol Hill. Trade groups representing the insurance, securities brokerage and financial advisor industries are lobbying and donating huge amounts of money in an effort to buy hearings and sway votes on legislation and rulemaking they deem important to their interests, according to an InvestmentNews article by Mark Schoff Jr. entitled “Industry trade groups flex lobbying muscles.”
Continue reading "Wall Street Pays to Play" »
Investors should use extreme caution before investing in alternative investments. Alternative investments have become the popular “investment du jour" but these investments are fraught with risks. Simply stated, alternative investments are not the panacea that so-called experts represent them to be. For the reasons discussed below, investors need to be very skeptical of any recommendation encouraging them to invest in alternative investments.
Continue reading "Most Alternative Investments Carry Huge Risks" »
The time is ripe for financial scammers who seek to take advantage of senior investors. Recently a 76-year-old Texas insurance agent was sentenced to up to 15 years for selling fake annuities to other elderly investors. The scammer in this case just happened to be the same age as many of his elderly victims. Mr. Langford apparently stole close to $7 million from dozens of clients through the sale of phony “private annuities” and promissory notes that promised interest rates as high as 9%.
Continue reading "Seniors Are Increasingly Targeted in Financial Scams" »
Many registered investment advisors and brokerage firms have increased their use of alternative investments for clients, many of whom are retired and lack the knowledge and sophistication to understand the complex investments, according to Liz Skinner’s InvestmentNews article entitled “Clients clamoring for alternative investments and advisers obliging.” But are alternative investments suitable for most investors? Similarly, are most investors provided with balanced disclosures of the risks that they are taking when they invest in alternative investments? Unfortunately, the answer to both questions appears to be no.
Continue reading "Alternative Investments Are Very Complex and Involve Significant Risks" »
Just as a low tide near the seashore can reveal shipwrecks, a falling stock market often reveals misconduct by investment advisers. This is particularly true with respect to an investment adviser’s duty to recommend only investments to a customer that are suitable in light of the customer’s investment objectives, status in life and risk tolerance. Unfortunately many investors only learn that their advisers have violated this duty when adverse market conditions develop.
Continue reading "Market Turmoil Expected to Precipitate an Avalanche of Suitability Claims" »
The securities regulator for Illinois has revoked the licenses of two investment adviser representatives, who are supposed to be fiduciaries, for recommending that elderly clients partially liquidate variable annuities in order to purchase equity index annuities, so that the reps could receive hundreds of thousands of dollars in commissions, according to Darla Mercado’s InvestmentNews article entitled “Illinois securities cops revoke licenses of reps for annuity sales.”
Continue reading "Annuity Products Used to Scam Senior Citizens" »
Sales of deferred variable annuities have increased since the 2008 market crash as investors wary of the stock market are lured by promises of guaranteed lifetime income and protection against market declines, according to a Bloomberg article by Margaret Collins entitled “Lifetime-Income Promise Fuels Surge in Variable Annuity Sales.” But many financial advisors are not recommending variable annuities to their clients because of the high commissions and other costs and the complexity of the product that requires an actuary to determine whether or not the benefits exceed the costs, according to Lavonne Kuykendall’s InvestmentNews article entitled “Annuity fees a turnoff for clients and advisers.”
Continue reading "Many Questions Arise When Considering an Investment in Variable Annuities" »
Securities regulators all agree that exploitation of retirees is a significant and growing problem. According to the U.S. Securities and Exchange Commission, 40 million Americans are age 65 or older, and that number will be 89 million in 2050. Seniors make up 15% of the U.S. population but 30% of fraud victims.
Continue reading "Financial Exploitation of Senior Citizens Continues to Increase" »
Zeke Faux’s Bloomberg article, “Indexed Annuities Can Yield Surprises,” focuses on complexity of the contracts that obscure high fees and long lock-up periods, and the fact that investors do not understand these products.
Continue reading "Buyer Beware of Equity Indexed Annuities" »
The SEC defines “churning” as “the excessive buying and selling of securities in your account by your broker, for the purpose of generating commissions and without regard to your investment objectives.” If your broker has been aggressively trading your account (or urging you to trade your account) directing a high volume of trades that make money for him but not for you, there is a good chance that he is guilty of churning the account.
Continue reading "Is Your Broker or Financial Adviser "Churning" Your Account?" »
Sales of indexed annuities to seniors is a form of senior financial abuse. That is what experts are saying about the product that is being aggressively and successfully marketed to seniors. See “Indexed annuities ‘terrible idea’ for seniors, says Wharton prof,” InvestmentNews, Jan. 24, 2011.
Continue reading "Indexed Annuities are Particularly Bad Investments for Senior Citizens" »
The Securities and Exchange Commission recently recommended that stockbrokers be required to put the interest of their clients in front of the stockbroker’s bottom line. However, stockbrokers are not the only advisors who put themselves first, according to an article by Anna Maria Andriotis of SmartMoney.com. Advisors from all different spectrums have incentives in selling certain products to customers in order to improve their personal bottom line.
Continue reading "Some Financial Advisors Don't Put Their Clients' Interests First" »
Zeke Faux’s Bloomberg article, “Indexed Annuities Obscure Fees as Sellers Earn Trip to Disney,” focuses on the undisclosed fees and perks that incentivize agents to gloss over negatives like substantial surrender charges that penalize purchasers who might need to sell the product to meet an unexpected expense.
Continue reading "Index Annuities are Extremely Rewarding - For the People that Sell Them" »
Beware of index deferred annuities, says Lisa Gibbs in her CNNMoney article, “Index annuities are a safety trap.” If your goal is to protect principal, you give up too much for that protection in an index annuity; there are better ways to do it, according to the article.
Index annuities account for a disproportionately large share of investor complaints, according to the article: “According to data that 16 states provided to MONEY, index annuities accounted for 30% of annuity-related complaints to regulators in 2009, even though they represent just 13% of annuity sales. In senior-heavy Florida, it was 55% of complaints.”
Continue reading "The Financial Press Continues Its Attack on Equity Index Annuities" »
Beware of equity indexed annuities, says Forbes Investment Guide. If your goal is to protect principal, you give up too much for that protection in an equity indexed annuity; there are better ways to do it, according to a Forbes article by William P. Barrett entitled “Protection Racket.”
Continue reading "Forbes - Equity Indexed Annuities are a "Racket"" »
Brokerages are marketing structured products that use complex derivatives and promising equity-like returns with less risk. But they are not as safe as they may appear to be, and experts say that most of them are actually worth less than what you pay for them, according to Jane J. Kim and Ben Levinsohn in their Wall Street Journal article, “Structured Notes: Not as Safe as They Seem."
Continue reading "Structured Notes Carry Big Risks for Unwary Investors" »
