People just retiring or recently retired are prime targets for unsavory money managers. These money managers frequently use “retirement seminars” as tools to build business for themselves. Brokers get paid on commission for selling investments, so the advice they give in those seminars can be tainted by their motivation for commissions.
Some employers even invite money managers into their companies when a lot of people are retiring (including early retirees). The large sums of money that changes hands when people retire are tempting to both good brokers and bad ones.
The stock market boom of the 1990s brought a lot of new people into investing, and it also brought a lot of new people in to being stock brokers. Many of these new brokers were not trained well, and they had no experience with bear markets. (Many brokers misrepresent their experience or education when pitching to investors.)
Many broker pitches in recent years recommended that people take their retirements benefit as a lump sum. The brokers then invested these large lump sums in financial instruments that would generate fixed income. Often these were annuities or more exotic financial products like unit trusts. Also popular were proprietary discretionary funds where the broker picks the stocks for the investors.
Wrap accounts are the favorites of many brokers when the client has a large amount of money. While traditionally brokers made money from commissions on buying and selling stocks, wrap accounts allowed them to act as a money manager and pocket a 1% (typically) annual management fee.
The wrap accounts generate more money for the brokers, especially from less active accounts. Retired people usually have less active accounts than working people.
Between wrap accounts, unit trusts, high-tech stocks, and annunities, retirees were essentially shifting to a more aggressive investing style at a point in their lives when they should have been going more conservative.
Even retirees who were knowledgeable about investments were often fooled. They thought that putting their money into annuities would ensure a steady stream of income. They didn’t realize that variable annuities did not guarantee a steady income and were closer to investing in stocks, only with higher management fees. Many also signed over discretionary authority for their investments without knowing it.
The plight of recent retirees is among the worst we have seen in many years of working with defrauded investors.
We’ve seen clients, hard-working people who have retired, and are now forced to change their lifestyles because brokers took advantage of them and they now have little money. People who are selling their RVs, their second homes, their boats. People who have to go back to work when they thought they were retired.
Stop the sleazy brokers. Contact us now to see about recovering damages.
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Differences between typical cash balance plans and 401(k) plans.