Posted in: Senior Investors | Variable Annuities |
A March 12 article by Charles Paikert, appearing on investmentnews.com, sheds light on the extent of enforcement actions against brokers who misuse designations that suggest that the broker specializes in helping seniors.
The article highlight the efforts of William Galvin, the Secretary of the Commonwealth of Massachussetts. Galving has correctly noted that many of the designations used by brokers are nothing more than marketing gimmicks aimed at securing the confidence of unsuspecting seniors.
"We’ve seen a pattern of abuse by people with a specialty that implies an expertise in financial matters pertaining to older people,” said Mr. Galvin, whose title is secretary of the commonwealth. “But many of these designations are simply used as marketing tools, and the goal is usually to sell annuities. We’ve seen an upsurge in the number of these cases and decided it was time to do something about it.”
Galvin has proposed regulations that would require brokers to be accredited before they could use such designations.
A key element of the proposed Massachusetts regulation, Mr. Galvin said, would be to establish an accreditation organization such as the National Organization of Competency Assurance or the American National Standards Institute, both of Washington, to accredit the credential or designation of an adviser or broker-dealer claiming to have financial expertise in working with people over 60 years old. “It is important to establish an absolute criterion to determine how people get these titles or credentials,” he said.
Galvin deserves credit for being the first state regulator to propose regulations aimed at the misuse of designations by brokers. But information buried in Paikert's actions make you wonder just how aggressive enforcement agencies are about protecting seniors from this newest abusive marketing technique. The article quotes Mississippi's assistant secretary of state for business regulations and enforcement, Jim Nelson, who claims that regulators in 14 states are pursuing 52 cases involving financial fraud against seniors.
The Massachusetts proposal is a “good model” and “a huge step forward,” said Jim Nelson, assistant secretary of state for business regulations and enforcement in Mississippi, who heads NASAA’s special committee on senior designations. “We’re seeing a disturbing increase of misuse and abuse of these types of designations,” said Mr. Nelson, who added that regulators currently are working on 52 cases in 14 states alleging financial fraud involving older investors.
52?
Given the millions of seniors who invest, and the billions of dollars that are in retirement accounts and annuities, bad brokers could be forgiven for concluding that the financial rewards of swindling seniors are worth the risk that they will be one of a handful of brokers that will be sued by a state regulator. And even if, as expected, the NASD introduces regulations that address the issue of broker designations and senior investors, those regulations aren't likely to deter bad brokers from pocketing large commissions from selling varibale annuities to seniors. These enforcement programs, and the press conferences that will accompany them are more likley to help regulators' images and re-election efforts than they are to help protect seniors.
I've been following brokerage houses and their marketing efforts for a long time. And one thing I've learned is that nothing bothers brokers more than the prospect of a substantial private lawsuit. We should try to educate seniors and their caregivers about misleading marketing efforts. But that will only go so far. Brokers are in sales, and thier ability and willingness to come up with new sales techniques is essentailly limitless. It is hard to prevent brokers from taking seniors to lunch. But ultimately the real deterrent to broker misconduct is an angry, well-informed private attorney. Someone like me.
