ParentCare » Vol. 6

Beware the “Free Lunch”

By Frederick M. Misilo, Jr.,Esq.

At the outset of this article I want to make it perfectly clear that I have a great respect for most registered investment advisors and certified financial planners. As an attorney who advises individuals and families in the estate planning area ~ and, in particular the elder law and special needs area ~ I have had a myriad of experiences in working collaboratively with reputable registered investment advisors and certified financial planners.

The selection of a registered investment advisor or certified financial planner is a very important decision ~ no doubt as important as selecting an attorney or a physician. Often, senior investors are invited to attend educational seminars offered by financial advisors. Most of these seminars offer worthwhile and important information. In fact, some financial services professionals offer so-called “free lunch” sales seminars as a way to attract new clients. I read with interest a report issued within the last year by the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission, the North American Securities Administrators Association and the Financial Industry Regulatory Authority entitled, “Protecting Senior Investors: Report of Examinations of Securities Firms Providing “Free Lunch” Sales Seminars.” The report details a series of field examinations which were conducted to review sales seminars targeting seniors and retirees for compliance with federal and state securities laws designed to protect investors. The examinations reviewed three specific areas:

1. Advertisements, seminar materials and sales literature.

2. Customer transactions resulting from these sales seminars.

3. Supervisor control systems to detect and prevent violations.
A total of 110 examinations were conducted over a fourteen month period.

The findings revealed some practices that senior investors should be aware of. First, half of the examinations found that firms used advertising and sales materials that may have been misleading or exaggerated claims. Second, in twenty-three (23%) of the examinations, the examinations found indications that registered representatives or investment advisers holding sales seminars had recommended investments that did not appear to be suitable for the individual customer. The report also expressed concern that the individuals attending the educational seminars may not have been aware that they are actually designed to sell certain investment products. The report went on to find that many seniors may not have been aware that an undisclosed company with a financial interest actually sponsored the event with the expectation that those conducting the seminar were expected to sell that company’s financial or insurance products.

With the aging population, senior investors are viewed as an important, if not vital, client base for investment and financial services professionals. The SEC has estimated that 75% of the nation’s consumer financial assets, valued at $16 trillion, are held by households headed by someone who is 50 or older. It is not surprising, therefore, that financial services firms focus their marketing and sales efforts on the senior investor.

In my experience, the vast majority of investment advisers and financial services professionals are honest, dedicated to their clients’ success and are willing to work collaboratively with attorneys and others to best promote the financial well-being of their clients. Senior investors should view their investment decisions as part of their overall estate plan and make sure that their attorney and other advisors are involved in their decision-making process.

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