Tuesday, April 28, 2015

Brokers get a mixed review on how they treat older investors: SEC- FINRA Report

One of the primary missions of the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) is the protection of investors, of which senior investors are an important and growing subset. As part of a collaborative effort, staff of the SEC’s Office of Compliance Inspections and Examinations (“OCIE”)1 and FINRA (collectively, the “staff”) conducted 44 examinations of broker-dealers in 2013 that focused on how firms conduct business with senior investors as they prepare for and enter into retirement. These examinations focused on investors aged 65 years old or older; this report refers to these investors as “senior investors.”

The results suggest more has to be done.“..More than a third of brokerage firms examined by regulators made one or more potentially unsuitable recommendations of variable annuities to senior investors, a report issued Wednesday found.The greatest issue regarding these sales was whether it was appropriate to exchange variable annuity contracts in light of the fees incurred, according to the report on the treatment of senior investors by the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc.(FINRA), the self-regulator of brokers. Firms generated the most revenue from seniors by selling open-end mutual funds, variable annuities, equities, fixed-income investments, unit investment trusts and exchange-traded funds, nontraded real estate investment trusts, alternative investments and structured products, in that order..”.

This report highlights recent industry trends that have impacted the investment landscape and discusses the key observations and practices identified during the recent series of examinations with regard to securities sold to senior investors, training, use of senior designations, marketing and communications, account documentation, suitability, disclosures, customer complaints, and supervision. OCIE and FINRA staff are providing this information to broker-dealers to support their thoughtful analysis of their policies and procedures as they serve the needs of senior investors.

OCIE and FINRA staff are concerned that broker-dealers may be recommending unsuitable securities to senior investors or failing to adequately disclose the related risks. It is imperative that senior investors receive proper and understandable disclosures regarding the terms and risks related to securities recommended to them, particularly non-traditional investments.

The 41 page Report National Senior Investor Initiative is available at http://www.sec.gov/ocie/reportspubs/sec-finra-national-senior-investor-initiative-report.pdf

Stock buybacks: From retain-and reinvest to downsize-and-distribute By William Lazonick

Stock buybacks are an important explanation for both the concentration of income among the richest households and the disappearance of middle-class employment opportunities in the United States over the past three decades,” says University of Massachussetts at Lowell economics professor William Lazonick in a new paper published by the Brookings Institution. “Over this period, corporate resource-allocation at many, if not most, major U.S. business corporations has transitioned from “retain-and-reinvest” to “downsize and distribute model.

 It is unlikely that the transformation of the U.S. business corporation from downsize-and-distribute to retain-andreinvest can occur without the leadership of the more visionary of current corporate board members, CEOs among them. In 2001, Jack Welch, upon his retirement as CEO of General Electric, published a book, Jack: Straight from the Gut, about his experience as a business leader.85 But it took Dr. Welch another eight years and a financial crisis to get his gut to speak to the absurdity of the ideology of maximizing shareholder value. In March 2009 Welch told a Financial Times reporter: “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy…Your main constituencies are your employees, your customers and your products.” Perhaps the interviewer had a shocked look because Welch saw fit to reiterate: “It is a dumb idea. The idea that shareholder value is a strategy is insane. It is the product of your combined efforts – from the management to the employees.”86 Any business executive, business school professor, or business consultant who understands what it is that makes an enterprise innovative should know that, in this case at least, Jack Welch was right. Read this thought provoking article at


Thursday, April 23, 2015

Check your brokerage service and maintenance fees

NASAA research shows investor confusion over fees| . A new advisory from the North American Securities Administrators Association (NASAA) aims to help raise investor awareness about fees charged by broker-dealer firms for account services and maintenance. In the advisory, NASAA suggests investors focus on the timing, method and content of these sorts of fee disclosures. It calls on investors to not place assets with a firm without a current fee schedule, to ensure that they understand those fees, and to pay attention to any changes that firms make to those fees. Additionally, it says that investors should know the services that they could use regularly, and ask specifically about the terminology a firm uses for its services and the associated fees. http://www.nasaa.org/35290/informed-investor-advisory-understanding-broker-dealer-fees/ Full Report Are you an informed investor? Understanding Broker-Dealer Fees available at   http://www.nasaa.org/wp-content/uploads/2015/04/BD-Fee-Advisory.pdf Fees impact returns- make sure you know what fees you are paying and that you receive the services associated with the fees.Don't hesitate to ask about seniors rebates, asset-based discounts etc. -It's your money.

Friday, April 3, 2015

“Risk Literacy”

 Using domestic and international data, Director Annamaria Lusardi finds that knowledge of financial risk is strikingly low both in the population and across a variety of demographics. Across countries and age groups, individuals show little mastery of concepts such as risk diversification and the relationship between risk and return. Indeed, in financial literacy surveys assessing knowledge of interest compounding, inflation, and risk, respondents consistently performed worst on the risk-related question. Knowledge of risk is critical to making decisions about saving and retirement planning. These findings have implications for individuals, policy makers, and the financial and insurance industry. While individuals are facing increasingly complex financial and insurance instruments, their low risk literacy may limit their ability to use these instruments on a micro level, and—on a macro level—impede the development of wellfunctioning financial markets. Read the full paper here