FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations

The Financial Industry Regulatory Authority and the Securities and Exchange Commission have put out a report, the Senior Investment Initiative, to help brokerage firms come up with better procedures and policies for older investors. With the current low yields on traditional savings accounts and investments that are more low risk, FINRA and the SEC’s Office of Compliance Inspections and Examinations are worried that broker-dealers could be recommending investments that may be to risky or unsuitable for seniors who want higher returns. They are also worried that the firms are not properly disclosing the terms and risks of these securities.

Considering that by 2040 there are expected to be some 79 million Americans in the 65 and over age group, information in this report is important for helping tackle investment issues as they relate to seniors. OCIE’s Director Andrew J. Bowden pointed out that seniors are now more than ever more dependent on their investments to help with retirement. Bowden noted that it is important that older investors are treated fairly and get suitable recommendations and appropriate disclosures about the risks, costs, and benefits of their investments.

The two agencies examined some 44 brokerage firms. They looked at brokerage firm reps training, communications, arresting, account documentation, use of certain designations, disclosures, supervision, and customer complaints.

The SEC and FINRA discovered that most older investors are buying open-ended mutual funds, variable annuities and other more simple products. However, there are some firms that are recommending investments that are not suitable to seniors seeking the higher returns. The agencies are concerned that these investors are making financial decisions without fully understanding the risks.

According to the report, the eight securities that generate the most revenue according to their purchase by senior investors:

• open-end mutual funds • variable annuities
• equities • fixed income investments • exchange-traded funds
• unit investment trusts • nontraded real estate investment trusts
• alternative investments • structured products.

FINRA and the SEC said there was evidence showing that 34% of the firms made at least one or more recommendation of variable annuities to a senior investors even though the investment was not suitable for that person. 14% of broker-dealers made potentially unsuitable recommendations that investors purchase alternative investments, which can be hard to value, come with high buying costs, frequently lack liquidity, and have limited historical data.

On a positive note, over 77% of firms had training specifically addressing senior investors and the issues that can arise. 13% of broker-dealers told reps to report suspicions of elder financial fraud or suspected diminished capacity of a client. You can read more about the report here. (link to report).

Senior Financial Fraud

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to help investors recoup their losses. Unfortunately, senior investors can be vulnerable to financial fraud, whether by someone they know or an unscrupulous financial representative. This can prove financially devastating to an investor that is now dependent on their investments for financial support.

Read the Report (PDF)

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