The Financial Industry Regulatory Authority is investigating member firms to ensure they are using appropriate sales practices in their dealings with seniors and individuals nearing retirement.
FINRA will look at investment seminars conducted by securities firms that are designed to entice older workers to liquidate their retirement funds and invest them with a specific firm or representative. In the past year, FINRA (or the former NASD) has fined two securities firms a total of $5.5 million and ordered them to pay $26 million in restitution related to early retirement investment schemes aimed at Exxon and BellSouth employees.
In the BellSouth case, Citigroup Global Markets Inc. agreed to pay more than $15 million to settle charges that a group of its financial advisers misled BellSouth employees during dozens of seminars and meetings between 1994 and 2002. According to NASD, during that time period financial advisers at a Charlotte, N.C., branch held more than 40 seminars with BellSouth employees in which the advisers gave BellSouth employees misleading advice to retire early by cashing out of and reinvesting their pensions and 401(k)s. For more information on the BellSouth case click here.
This investigation also follows a September report of a FINRA examination of securities firms that offer what are known as “free lunch seminars.” According to FINRA, these seminars are “widely” offered to senior investors by securities firms and often include a free meal for attendees.
In the course of this examination, FINRA looked at 110 firms to see whether they used misleading or false advertising or materials during retirement sales seminars. It also looked to see whether proper supervisory systems, policies, and procedures were used to detect or prevent the violation of securities law during the sessions.
According to the report, securities companies try to attract senior investors to their seminars by holding them at upscale hotels, restaurants, and golf courses, and will use other incentives such as free meals, door prizes, and even vacation packages. In half of the cases FINRA found that securities firms used advertising and sales materials that “may have been misleading or exaggerated or included seemingly unwarranted claims.” For example, sales materials may have included claims such as , “How $100K can pay $1 million dollars to your heirs.”
In addition, regulators found that seminar attendees may not have been aware that these meetings were sponsored by undisclosed mutual fund and insurance companies with an interest in having instructors conducting these seminars push their products. Finally, FINRA examiners found cases of weak supervisory practices in 59 percent of the cases they examined.
About a quarter of the firms examined are now being reviewed with the possibility they’ll be further investigated by a state, FINRA, or the SEC, and the report suggests, among other recommendations, that “financial services firms should take steps to supervise sales seminars more closely, and specifically take steps to review and approve all advertisements and sales materials for accuracy.”
For more information on the FINRA report, click here.