When it comes to investment seminars targeted at seniors, it may be a good idea to keep in mind the old saying, “There is no such thing as a free lunch.” And while you’re at it, if the invitation to the free lunch or dinner says at the bottom: “Agents/Brokers/Lawyers not permitted to attend,” that ought to raise some red flags.
Assistant Secretary of State for Business Regulation and Enforcement Jim Nelson said anytime investors are told not to talk to their own CPA, lawyer, stock broker or investment advisor or, as sometimes happens, not even their children because “they may talk you out of it,” the investor should be extremely cautious.
“Always get a second and third opinion before making major changes in your financial plan,” Nelson said. “Our citizens need to be very, very cautious about abandoning their long-time retirement program or pension program or longtime relationship with professional investment advisors or stockbrokers. They are just throwing that to the wind and going with one of these folks they heard at one seminar one time. Typically these people at the seminars will tell the individuals, don’t go tell your lawyers, accountant or investment advisor that you are planning to do this because they will try to talk you out of it.”
Nelson said it amazes him because Baby Boomers don’t hesitate to get second and third opinions when it comes to their health. But for financial advice, they will let someone tell them not to go get a second opinion. It is equally important with financial issues to get second and third opinions from professionally licensed and educated securities professionals.
When the fine print on the free lunch investment seminar says investment advisors aren’t welcome, Nelson said that should reason enough to stay away. Any legitimate professional would be more than happy to have you compare what they are offering with what someone else is offering.
Investment scams are targeted to seniors and soon-to-be seniors who are Baby Boomers in Mississippi because that is where a large amount of income is. Generally, the Secretary of State’s Office gets about 100 citizen or investor complaints a year regarding financial products. Staff investigators and examiners investigate complaints by visiting the offices of the sales people. The majority of complaints have centered on the so-called free lunch seminar.
“Many times the people doing these sales do not understand the product they are selling and do not have the best interests of the investors at heart,” Nelson said. “They are simply trying to generate commissions for themselves.
“The worst abuse we have seen is some of these individuals are enticing our citizens to retire early, convincing them they can go ahead and retire, pull money out of their retirement plan, put the money into these hybrid insurance products, and make as much money off of these products as they did when they were working full time. It would be nice if it was true, but they are using unrealistic rates of return.”
What the Secretary of State’s Office has seen from people who have gone for this is in the first couple of years they are making as much in retirement as working full time. But taking money out at such a high rate starts eating away at the principal.
“Every one of them ended up having to go back to work,” Nelson said. “And they are not going back to their careers and old jobs, but going back to hourly wage jobs and are hurt significantly. It has really been a very, very sad thing to see. I dare say there is no investment out there you can invest in and earn the same amount of money every year that you do working full time. Retirement is retirement. The whole principal behind retirement and pension plans is that you will not be making the same salary as full-time, but expenses will be less at that time.”
Be wary of promises of high rates of return. The stock market goes up and down, and will have good years and bad years. On average since records have been kept, the stock market has gone up an average of 10% a year.
“Many times sales presentations are based on potential 10% to 14% returns each and every year,” Nelson said. “This is ridiculous. You can’t possibly offer rates of return like this without eating into the principal. The stock market won’t always continue to go up. It will have its good years and its bad years.”
It is also important to understand that hybrid insurance products often come with large annual fees and expenses so that the stated rate of return is not the end result rate of return. Once you subtract fees and expenses, that often makes the product less attractive.
“That will always be buried in the fine print on the product,” Nelson said. “Some also have very expensive surrender penalties and charges. If you are a senior and buy one of these products, and in the next year or two you need the money because you or spouse needs to go into a nursing home, you’ll pay huge surrender fees. Many times these things are not discussed at these free lunch seminars because they are the negatives of such products.”
There are a number of other factors to consider when purchasing securities. First, is the company offering the investment registered to do business in Mississippi? By calling the Secretary of State’s Business Services Division at 1-800-804-6364, investors can find out whether the agent, the salesperson and the product are registered in the state.
“We can also tell them if any complaints have been filed regarding the product or the agent themselves,” Nelson said.
Securities fraud is becoming more and more of an issue with the financial services industry merging parts that used to be separate: banking, insurance and securities. As financial product services merge, sales people are selling products they are not traditionally that familiar with. And Nelson said the companies themselves are issuing and developing hybrid products like a variable annuity, which is an insurance product but has some securities aspects to it because it is exposed to market risks.
“Another example would be a jumbo CD,” Nelson said. “Unlike bank securities that are insured by FDIC, jumbo CDs and market-indexed CDs can be exposed to market risks and may not be fully insured by the FDIC.”
Additional advice is considering where the company is located and what kind of business it is. Don’t purchase something over the telephone from someone you have never met.
“It ought to be somebody who lives in your community who you know and see every day at Rotary Club, the church or the grocery store, not just a disembodied voice from a toll-free number somewhere else,” Nelson said. “You should do business with a registered investment advisor or a stockbroker. Registered advisors have to pass exams. To pass these exams, they have had the education necessary to sell securities and to offer investment advice in this state.”
Other questions to ask are, “How long has the company been in business? Has it been successful? How does the company intend to use your money?”
Nelson also recommends asking stockbrokers or investment advisors for a list of their clients to ask them how they like the broker and their services.
“You should check them out,” Nelson said. “See how long they have been with the person and are they happy with the person. Do they return their phone calls? Can you reach them when you need to? Do they answer your questions thoroughly and professionally? These kinds of things you would expect from anyone you do business with.”
Investors should receive a reliable and current financial statement of the company and a prospectus of the product that would outline all of the disclosures in the product. All fees and expenses should be explained, along with periods and charges for surrender. Issues such as lawsuits or bankruptcies pending against the company or any of its officers and directors should also be disclosed in a prospectus along with information about the officers, directors, and other personnel of the company.
Another caution: If the individual touts himself as a “Certified Elder Planning Specialist,” know that this designation is a marketing tool and not a legitimate professional designation implying special expertise. Often with the free-lunch seminar, the individual is a licensed insurance agent but is not a licensed securities professional — a stock broker or an investment adviser.
The North American Securities Administrators Association (NASAA) says individuals may call themselves “senior specialists” to create a false level of comfort among seniors by implying a certain level of training on issues important to the elderly. But the training they receive is often nothing more than marketing and selling techniques targeting the elderly. These sales people and the alphabet soup of letters after their names can be confusing, and in some cases, may even be deceptive to seniors.
Finally, use common sense.
“Don’t take anything at face value,” Nelson said. “Do your own homework and research before you invest. And don’t put all of your eggs in one basket. That old saying you heard mother say is very sound advice, as many of our people found out in the WorldCom scandal. Many investors told us they were in the stock market in only one stock: WorldCom, so they lost everything. And now they have a bitter feeling about the stock market and investing. It was a harsh lesson to learn, but don’t put all your money into one product or investment.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.