Can regulators stave off 'massive increase in senior misery?'

Elderly seen as easy target for unscrupulous advisers, fraudsters; Finra zeroing in on complex products

Apr 9, 2013 @ 3:45 pm

By Mark Schoeff Jr.

With thousands of baby boomers entering retirement every day, industry experts are warning about a substantial increase in investment frauds targeting the elderly. Meanwhile, one regulator is taking a hard look at the way financial advisory firms sell seniors complex financial products.

The Financial Industry Regulatory Authority Inc. is gathering data from firms regarding the products they market to seniors, the percentage of revenue they derive from those sales and the designations firms are using to market themselves to older Americans.

“It's something that has all of our attention, and I think it's somewhere where you'll see regulators continue to focus,” Susan Axelrod, Finra executive vice president for member regulation sales practices, said at a compliance conference Tuesday at the Securities and Exchange Commission.

The data that Finra is collecting will provide “a good reflection point for us to better understand the [financial] world and take steps … to ensure the appropriate supervision of sales to seniors,” she said.

In an interview, Finra chief executive Richard G. Ketchum said that seniors are especially vulnerable to offers of yield-chasing and high-risk products.

“These are people who have been particularly impacted by substantial reductions in interest rates because the cash flow coming from their investments often is a significant supplement to whatever 401(k), pensions and Social Security they have,” Mr. Ketchum said.

Participating in a panel at the event, Mercer Bullard, president of Fund Democracy and professor of law at the University of Mississippi, asserted that the United States is on the verge of a “senior crisis” posed by the risk of seniors' outliving their assets and their declining ability to manage their money as they age.

“What we're looking at is a massive increase in senior misery,” Mr. Bullard told the conference audience, which was made up mostly of financial firm compliance officials.

The increasing sophistication of financial products combined with longer life expectancy is creating an environment in which fraud can thrive, according to Mr. Bullard.

“There's probably someday going to be a good argument that anyone over 75 shouldn't be sold anything that is outside of a predetermined list of fairly simple funds, meaning low-volatility and low-risk,” Mr. Bullard said in an interview. “Otherwise, we're going to see millions of seniors living on Social Security who are not expecting that to be their standard of living.”

Too little attention is being paid to declining living standards among older Americans, according to Mr. Bullard.

“I'm not seeing, right now, a cultural recognition of this as a major problem,” he said.

The Consumer Financial Protection Bureau also is targeting financial abuse of the elderly through its Office of Older Americans. In a comment letter last summer, the Certified Financial Planner Board of Standards Inc. urged the agency to create a ratings system for financial certifications and designations.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

How are broker-dealers helping 401(k) advisers adapt to a changing market?

Bryan Hodgens, co-head of LPL Financial's Retirement Partners group, says the industry is getting much better at connecting advisers to wealth management opportunities and helping scale their businesses.

Latest news & opinion

IBD report: Another impressive year

Despite a stock market decline, revenue is up. And the streak isn't expected to end anytime soon.

IBDs with the most CFPs

How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

Richard Thaler wants to use 401(k)s to boost Social Security payments

The Nobel laureate wants to simplify drawing down retirement assets, which he thinks is 'way harder' than saving the money.

InvestmentNews announces 2019 Innovation Awards winners

Sheryl Garrett is this year's InvestmentNews Icon.

Morgan Stanley rides wealth management train to solid first quarter

Chairman and CEO James Gorman expresses excitement about expanding into workplace plans with purchase of Solium.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print