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Lunch seminars may not serve seniors well

A study finds sales pitches, not unbiased advice, are typical.

September 11, 2007|Jonathan Peterson | Times Staff Writer

WASHINGTON — Accepting an invitation to a "free lunch" investment seminar could come at a high price -- especially if you are retired, according to findings released Monday by state and federal regulators.

Instead of offering unbiased investment advice, restaurant seminars are typically geared to selling high-cost financial products -- with promoters often throwing in door prizes, tote bags and even golf games as ploys to get senior citizens to buy into their investments, the study found.

Regulators scrutinized 110 free-lunch seminars and found that half of them featured exaggerated or misleading claims. What's more, 13% were referred to investigators for possible enforcement action against their promoters.

Virtually all of the seminars were "sales jobs in disguise," despite claiming to be just informational, and more than one-third gave out inappropriate advice to the attendees or committed outright fraud, said Christopher Cox, chairman of the Securities and Exchange Commission.

"The SEC and our fellow regulators intend to put a stop to this," Cox said.

The findings were based on an examination of retirement investment seminars in California, Florida, Texas, Arizona, North Carolina, Alabama and South Carolina from April 2006 to June. They were announced Monday at a Senior Summit hosted by the SEC and other officials in Washington.

Regulators said the burgeoning population of older Americans has attracted legions of salespeople pushing questionable investments. The free-lunch seminars are one example of unscrupulous sales tactics; others include hyped-up "senior advisor" designations meant to give salespeople unwarranted credibility and efforts to lure older workers into early retirement so that financial advisors can earn commissions managing their retirement nest eggs.

The findings echo those made last year in The Times' "Retirement at Risk" series, which detailed how some financial advisors used hard-sell tactics to push costly investments on senior citizens without regard to their financial needs.

Mary Schapiro, chief executive of the Financial Industry Regulatory Authority, the investment watchdog agency created this year, said there was "a true need for increased educational and enforcement efforts."

"I'm concerned that as the population grows older, these strong-arm tactics will only grow more sophisticated," she said.

The study released Monday uncovered instances of brokers making wild promises, such as to turn $100,000 into $1 million. It also found examples of salespeople pushing risky investments on customers who preferred to be cautious, or selling investment products in which it was difficult or costly to take out cash in a hurry to people who might need to do just that.

In a related development last week, the SEC approved a rule designed to tighten standards for the selling of deferred variable annuities, a type of investment that may raise serious questions in terms of suitability for many older consumers.

Such investments offer tax-deferred treatment of earnings and the promise of a stream of future payments.

But they may charge steep penalties for withdrawing money before a certain "surrender period" lapses, possibly for several years or even longer, and agents may collect thousands of dollars in fees, further weighing down the returns.

The new rule applies to deferred variable annuities, which promise future payments. Products in which the payments start right away are known as immediate annuities.

Under the new rule, brokers are explicitly required to consider whether deferred variable annuities are suitable for the buyer, and companies are expected to review such transactions and train brokers to ensure that they comply.

"We think it can be really instrumental in helping us protect seniors and ensure that products they are sold are appropriate," Schapiro said of the rule, which was developed at the Financial Industry Regulatory Authority.

After the SEC event, Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee and a Democratic presidential hopeful, said he would soon announce an initiative to address "the financial exploitation of America's seniors."

"Our older citizens deserve the peace of mind of a safe and secure financial future, not the worry of being robbed blind of their hard-earned savings by a crooked salesman with a flashy, deceptive title," Dodd said in a statement.

Authority officials said they were conducting regulatory sweeps designed to protect older investors. One such effort is scrutinizing the use of titles such as "senior specialist" by brokers -- titles that may appeal to older consumers but in many cases may not be backed up by specialized knowledge.

Another sweep is examining seminars that try to lure older workers into early retirement by making outlandish promises about future investment returns.

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