How Do Brokers View Nuns and Teachers?
Riaz K Tayob
Ever Read
Posted May 12, 2009 | 09:36 PM (EST)
How Do Brokers View Nuns and Teachers?
As potential victims, of course.
They both have the perfect profile: Unsophisticated investors. Trusting
and caring people who place the interest of others over self-interest.
Enter the slick broker.
The victimized nun wasn't your regular nun. At age 64, she inherited
$532,000 in mutual funds from her deceased mother. But she had a
problem. She had taken a vow of poverty. She wanted the money to go to
her religious order.
Her friendly broker was just the person to guide her back into poverty.
He cashed out $125,000 of her holdings and instructed her to endorse the
check and return it to him. She did so and he deposited the funds into
his personal account.
But she wasn't broke yet. There was more work to do. In a somewhat
convoluted scheme, he scammed her out of the balance of her holdings and
deposited those funds into his personal account as well.
Fortunately, the broker put his ill-gotten gains to good use. He formed
a company geared to marketing his investment services to athletes!
Was the broker with a pump and dump operation? Not exactly. He was
employed by Legg Mason which was acquired by Citigroup.
All of this was too much for FINRA, the toothless tiger that "self
regulates" its colleagues in the securities industry. It barred the
broker for life.
What about the teacher?
She had significant funds in an IRA account. An insurance agent
authorized by her school district to pitch annuities to teachers as part
of their 403(b) plans, met with her in the teacher's lounge. He had a
great deal for her. How about taking her IRA account and investing it in
an Equity Indexed Annuity?
Under the best of circumstances, Equity Indexed Annuities are very
dubious investments.
A former SEC economist noted that they have "high hidden costs" and
"extraordinary commissions".
Putting an Equity Indexed Annuity within an IRA would almost never make
sense. IRA's are already tax deferred and subject to penalties for early
withdrawals. The teacher is being charged for the tax deferral benefit
of an Equity Indexed Annuity which she already had in her IRA. In
addition, this annuity imposed a fifteen year penalty period for
withdrawals, which makes extricating from it very expensive.
The agent was pretty happy. Sales of these "insurance products"
typically generate up-front commissions ranging from 5%-10%.
I have this theory about market beating advisors and brokers. When they
talk about "retirement planning", it means they are planing to retire
with your assets. When they talk about "wealth management", it means
they are managing to transfer your wealth to them.
You don't have to be a nun or a teacher to be a victim.
But it helps.
Dan Solin: How Do Brokers View Nuns and Teachers? (13 May 2009)
http://www.huffingtonpost.com/dan-solin/how-do-brokers-view-nuns_b_201018.html