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

money bags

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

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.

This article was published by Investment News on April  9th, 2013.  To see the full article and other related articles on The Investment News website, please click here

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.”

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