It turns out some brokers are getting fat commissions off the investments they are plugging at those “free” lunches they offer senior citizens.
You know the drill. In return for a free meal, a group of potential clients agrees to sit through a sales pitch. The programs are usually heavy on the benefits of the investment being hawked but light on any downside exposure.
Now, the Securities and Exchange Commission is raising a red flag over concerns some brokers are using the lunches to lure senior citizens to hear pitches for high-commission products. Kevin Goodman, national associate director of the SEC's broker-dealer examination program, said his agency is targeting brokers who are sponsoring the luncheons as a way to drum up business from seniors.
“We have seen during examinations a strong correlation between using the free lunch seminars and successfully selling high-commission products,” he said at a recent conference sponsored by the Securities Industry and Financial Markets Association.
NOTHING INHERENTLY WRONG
Mr. Goodman said while there is nothing inherently wrong with sponsoring such lunches, brokerages must supervise them closely to guard against abuses. “There is undeniable correlation between conducting [lunches] and a higher incidence of problematic behavior,” he said.
The SEC warning is another reminder of the vulnerability of the elderly to those in the investment business more interested in making a quick buck than in actually helping seniors. As baby boomers advance in age, their ability to separate the hucksters from those who truly have their interests at heart becomes diminished.
At the same SIFMA conference, Mr. Goodman raised another concern among regulators: the proliferation of credentials that are designed to convince elderly investors that the credentialed adviser has specialized knowledge of retirement planning. As he pointed out, some of these highfalutin titles have more to do with marketing than education.
It is heartening to see that in the case of elderly investors, regulators are being proactive in trying to stop abusive behavior before it happens, rather than trying to punish the guilty after seniors have lost their savings.
