“When there is blood in the water…the sharks will come!”

This isn’t a quote from ‘Shark Week’ on the Discovery Channel, it is an accurate summary of what is currently happening as financial firms are targeting a huge demographic that will continue to grow in our country. The baby boomer generation (born 1946 – 1964) has made a dramatic impact on our country throughout their lives and now they’re all entering or nearing retirement. Every single day there are 10,000 additional baby boomers turning 65! As they enter retirement and roll over their retirement accounts, they find themselves being targeted by various firms attempting to ‘feed’ on their hard-earned savings. This year FINRA (Financial Industry Regulatory Authority) has filed several ‘cease-and-desist’ orders against financial firms for these practices and also launched the FINRA Securities Helpline for Seniors at 844-57-HELPS or 844-574-3577 in an effort to address this growing issue.

FINRA reported that the hotline received several hundred calls as soon as it was opened from individuals ranging in age from 45 – 99. The regulatory agencies realize they need to get ahead of this crisis as it will only continue to grow with each passing year. This spring the SEC and FINRA released a report titled “National Senior Investor Initiative”, the study focused on 44 national firms, looking at the products and services that were sold by their representatives to senior investors.   Below are the results based on the revenue generated and the frequency that they were purchased at the firms:

1. Mutual Funds 77%
2. Variable Annuities 68%
3. Equities 66%
4. Fixed Income products 25%
5. UITs and ETFs 20%
6. Non-traded REITs 20%
7. Alternative investments (BDCs & leveraged products) 15%
8. Structured Products 11%

We won’t dig into the specifics of each product as we have discussed the majority of them in-depth before (just click on each to read more!). What we really need to focus on is how they were ranked…by revenue generation! This list is not reflecting what is appropriate for senior investors by any means. It clearly illustrates how financial firms are focused on this demographic and aggressively marketing to them in an effort to generate profits for themselves. Financial firms are getting ready for what will be a huge opportunity for them in the coming years. In 2010 there were approximately 40 million individuals over the age of 65 and by the year 2030 that number will grow to over 72 million Americans! The sharks are circling…are you and your family prepared?

We’ve all heard horror stories of the elderly being taken advantage of by individuals with no ethics or morals. What they need to be prepared for now is that it will no longer be just the slick salesperson that they need to be suspicious of…it will be the sharp dressed broker from a well-known Wall Street firm. Remember that the majority of brokers or financial advisors are simply employees. Do you want to see what investments and products that the majority of them will position with clients? All you have to do is look at the their compensation grid as nothing speaks louder than the almighty dollar. Simply put, they sell what pays them the most!

Just this past week FINRA ordered several firms to pay fines totaling $18.4 million for charging clients excessive fees associated with mutual funds. Edward Jones was by far the top violator as they were hit with a fine of $13.5 million! While this fine looks significant it’s really nothing more than a slap on the wrist. Take the figure of 10,000 individuals turning 65 every day; if you use a conservative figure that each individual has $100,000 in retirement accounts (401k, 403b, SEPs, SIMPLE IRAs, etc…) the numbers are mind-boggling! Over the next 15 years there will be over $5.5 billion dollars in transition… and remember we are using a very conservative figure!

The list we shared at the beginning of this article is certainly not all-inclusive; it is focused on products that brokerage firms sell. There are many other investments and scams that baby boomers are inundated with on a daily basis. The National Council on Aging (NCOA) considers financial scams against seniors as “the crime of the 21^st century”. Some other products/services that seniors need to be cognizant of are:

• Medicare Fraud
• Insurance Fraud
• Reverse Mortgages
• Gold and other precious metals

This issue is not going away; just as baby boomer numbers grow so will incidences that capture headlines and decimate a family’s financial goals. It is safe to say that nearly every individual will either be exposed to questionable recommendations at some point or have a friend or family member that will be. Just in the last few months we have run into several situations where investors were given ‘advice’ that was more advantageous to the ‘financial professional’ than themselves. We encourage
everyone to always seek a second opinion and if something seems too good to be true… chances are it is! Ask challenging questions to ensure that you are fully
informed and understand the product or service completely. It is vital that you know how much you are being charged and how the broker is being paid and how much. Baby boomers have worked hard to accumulate their portfolios, unfortunately there are sharks circling and looking for any opportunities that they can take advantage of to line their own pockets.