Who Is Protecting Senior Citizens From the Financial Planning “Experts?”
Massachusetts is cracking down on brokers and other financial advisors who falsely claim to have special expertise in advising senior citizens on their investments. The new regulations, which take effect June 1, will require that such claims of special credentials must be approved by the Secretary of State. You can learn more about the Massachusetts regulations on the website of Secretary of the Commonwealth William Galvin.
When it comes to investments, senior citizens are where the action is. There are 37 million senior citizens (age 65 and older) in the U.S. today. It is estimated that they control 70% of our nation’s assets. Their median household net worth is $108,885. When you consider that that figure includes home equity, most senior citizens are not wealthy people who can afford to lose lots of money due to poor financial advice. What do you do when you are in your 60s or 70s or 80s and lose your life savings? Few things are more reprehensible than an unscrupulous broker or advisor who recklessly plows through a senior adult’s assets.
To say I am skeptical, is probably an under statement. Massachusetts already licenses insurance agents, registered representatives (securities brokers) and registered investment advisors (as do the NASD/NYSE and the SEC). False or fraudulent representations are already illegal. Investment recommendations that are unsuitable for the elderly or exceed their fragile risk tolerance is already illegal. How will a second license or second level of credentialing help?
Massachusetts would be better off protecting the elderly by restricting surrender charges to two years on products sold to persons after their 70th birthday, prohibiting sales of products to married persons over 70 that do not automatically include a right of survivorship, and doing more to educate licensed persons about and set standards for risk tolerance for persons above the age of 70. For example, people over 70 do not belong in over concentrated portfolios. I often see instances where older and elderly people have been over sold growth and aggressive growth products, sometimes overlapping products, and then the issuer, the broker – dealer or the sales person forget the client exists and does not review positions annually or rebalance the portfolio. Down side risk only seems to matter after a major market correction.
There are too few enforcement actions by states and Massachusetts is hardly leading the way. Most state regulators do not have to commence a forfeiture proceeding against a licensee; the regulator can simply look at a situation, and call the issuer’s general counsel, and advise them they have thirty days to solve the problem. Most issuers will leap at the opportunity to avoid a public announcement of an enforcement action based on sales practice violations practiced on the elderly.
