Monday, October 3, 2011

Sad But True

It breaks my heart when I see people getting taken advantage of by registered representatives (RR) and insurance agents. Especially, the elderly. I had a prospective client come in and I reviewed their (I hate to even say this) portfolio. Forty percent of their portfolio was in Non-Publicly Traded REIT's. Readers of this blog know how I feel about these (again, I hate to even say this) investments. Of course this is what the registered representative (RR) had sold the client. When an RR puts people in these Non-Publicly Traded REIT's, it is out of pure greed. These investments pay 7 to 10% in commission to the RR while locking in the client for 10 to 12 years or more. Apparently, this RR sees no problem in selling someone in their eighties a non-liquid investment that may or may not give them their money back before they turn 90 something. Nor does this RR see any problem with locking up 40% of an elderly client's money for 10 - 12 years. Is steam coming out of your ears? It is mine.

I thought that I would look up the background of this RR on the FINRA Broker Check site. Seems like he had a complaint for selling...guess what? You guessed it...Non-Publicly Traded REIT's. As luck would have it, he won the complaint against that client by saying that he had three meetings with that client where he explained the risks and that client knew and signed off on the risks. You see this is how Suitability in the world of Wall Street broker-dealers works. RR get away with this kind of behavior all the time.

But wait, it gets worse. I have not told you about the insurance agent and their antics yet. The rest of this prospective client's portfolio was in...guess what? You guessed it...Annuities. Several of these annuities, I know for a fact, pay 10% commissions to the insurance agent and have 14 year surrender charges for the prospective client. So, I am looking at this situation and I see the whole portfolio locked up for between 10 to 14 years for someone in their eighties. Insurance agents are subject to similar Suitability rules. As long as the prospective client is explained the risks and signs off on the risks, then this is perfectly legal to do. Legal maybe, but ethical, no stinking way.

So, I carried my background search a little further. I decided to look up this insurance agent's background. Seems like we have a few issues with this (dare I say it) professional. Apparently, this person had their securities licensed revoked and also had served two years probation on their insurance license for...guess what? Right again. Complaints about selling annuities.

This prospective client had paid roughly $60,000 in commissions to these two professionals.

I know what you may be thinking, but this kind of activity is so common amongst RR's and insurance agents that it is not worth complaining about it. Think about it this way. If each of them are making $30,000 off of this person, then they are probably doing the same with everyone. Therefore, the likelihood of them making several hundred thousand dollars a year is a very high possibility. As a result, they can easily pay for their legal defense to fight any complaints. This would just be a cost of doing business.

Like my title says...sad, but true. With a caveat from me, don't let this happen to you or someone you know. Do not do business with banks, insurance agents or Wall Street firms. Their first priority is to generate commission revenue for themselves. Clients are of little concern.