Seniors, beware `free lunch'

PERSONAL FINANCE

Your Money

September 11, 2007|By EILEEN AMBROSE

You've heard the adage, "There's no such thing as a free lunch." That's especially true when it comes to investment seminars targeting older investors.

Securities regulators spent the past year examining "free lunch" seminars and released the results yesterday at the second annual Seniors Summit at the Securities and Exchange Commission.

They aren't good:

All 110 seminars that were included in the study were sales presentations, despite claims that they were "educational" and "workshops" or promised "nothing will be sold."

Half the time the seminars exaggerated claims or misled investors with ads such as "Immediately add $100,000 to your net worth" or "How $100K can pay 1 Million Dollars to Your Heirs."

About one out of five seminars appeared to make unsuitable recommendations, such as putting conservative investors in risky products or tying up investors' money when they needed ready access to cash.

Examiners suspected fraud at 14 seminars and notified regulators. The report says that in some of the cases, it appears customers' accounts could be cashed out without their knowledge or that customers could be sold phony investments.

This report is part of a broader effort by state, federal and industry regulators to look into unscrupulous practices to separate older investors from their money. It's a big problem. People age 60 and older account for 15 percent of the population but make up 30 percent of fraud victims, regulators say.

Salespeople target older investors because that's where the money is. As of last year, those 50 and older controlled $16 trillion, or three-quarters of all consumer financial assets, regulators report. Regulators worry that older investors will increasingly be subject to high-pressured and questionable sales tactics as baby boomers near retirement and wonder what to do with their nest eggs.

"Free lunches" came under review because regulators believe they are increasingly being used by financial firms wanting to advise retirees and those nearing retirement.

Consumers don't have to avoid all "free lunches," because some of them are legitimate, says Joseph Borg, president of the North American Securities Administrators Association, which represents states' securities regulators.

But Borg says consumers should check out the company sponsoring the lunch and the speaker before attending.

"The word is be very cautious and never, ever buy anything or agree to buy anything at the seminar," Borg says. "And be wary of follow-up calls."

The lunches often take place at fancy hotels, restaurants and country clubs. Attendees usually are asked to fill out a questionnaire about their holdings. These consumers are contacted later by salespeople pitching variable annuities, reverse mortgages, equity-indexed annuities, mutual funds and real estate investment trusts, the report found.

Salespeople often play on your fears, such as the loss of Social Security, outliving your money or paying estate taxes, Borg says. And they often try to make you distrust your accountant, lawyer or other current adviser, he says.

Many of these lunches are held by salespeople with so-called "senior" professional designations, Borg says.

"We started to see the use of these designations like `senior wealth financial expert' or `certified senior wealth-building and something or other' " in recent years, Borg says. Often it takes little or no training to get these designations, but older investors trust these titles, he says.

The growth of misleading professional designations was the subject last week of a hearing by U.S. Senate Special Committee on Aging. Two states, Massachusetts and Nebraska, recently adopted tighter rules on professional designations. Borg's group plans to draw up model legislation on designations that other states can adopt.

But don't wait for regulators to act. Marylanders can do a background check on a prospective adviser by calling the state's securities division at 410-576-7048.

Also, check out an adviser's professional designations. "We tell people to find out what they mean if you're going to depend on them," says Ed Long, with the nonprofit Healthcare and Elder Law Programs in California.

Long's group offers a questionnaire online called "Ask First!" that consumers can print out and have professionals fill out about their education, licenses and compensation. It's available at www.help4srs.org.

Questions? Comments? Write personal.finance@baltsun.com.

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