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“LPL Financial fined $11.7 million for widespread supervisory failures”
-Investment News
“Citigroup Fined in Rate-Rigging Inquiry but Avoids Criminal Charges”
-The New York Times
“Merrill Lynch to Pay $415 Million for Misusing Customer Cash and Putting Customer Securities at Risk”
-Securities Exchange Commission
JPMorgan to Pay $307 Million for Steering Clients to Own Funds”
- The New York Times
FINRA Fines Morgan Stanley Smith Barney LLC $5,000,000 for Supervisory Failures Related to Sales of Shares in 83 Initial Public Offerings to Retail Customers”
- FINRA
“EX-JPMorgan Advisor charged in $20M Fraud”
-USA Today
o Identify Potential Types of Abuseo No one is immune.
o Learn How to Protect Yourself
o Learn What to do if You Are a Victim• You have rights!
o Fewer Pension Plans:o Lump sum buyout.
o 10,000 Baby Boomers retire each day!
o Most retirees are not educated in proper investment management.
o Financial investments are becoming more complicated and in many cases, much riskier.
o Retirees must turn to financial professionals for guidance and management.
o This leaves retirees vulnerable to the abuses of unscrupulous or incompetent financial professionals.
o Misrepresentationo Misrepresenting the risk or reward of a security.
o Ponzi Schemes, ARS, Complex Derivative Investments, Variable Annuities, REITs, Penny Stocks, Options Risk.
o Suitability Violationso Growth vs. Income
o High Risk Level
o Poor Asset Allocation
o Over-Concentration
o Churningo Multiple purchases and sales purely for commissions.
o “Selling Away”o Investment Schemes, Ponzi Schemes, Theft.
o Unauthorized Trading
o Relationship with the Broker
o Long term trusted relationship.
o Affinity fraud.
o Aged or Financially Unsophisticated
• Cold calls.
• Hot Tip
o Questions your broker should ask…
o Your education, experience and sophistication.
o What are your assets?
o What kind of losses can you absorb?
o What are your sources of income?
o What are your sources of liquidity?
o Are your expectations reasonable?
o What is your appetite for risk?
o Age?
o Special needs. Health considerations, legacy
considerations, etc.
• Discretionary Accounts
• Options Trading in Accounts of Seniorso Naked Call or Put Writing.
• Margin
• Over-Concentration
• Penny Stocks
• High Yield Securitieso “Safe” Income, or
o High Yield equities,
o Junk debt,
o High Yield Bond Funds.
8X more risk than a suitable benchmark.
Transaction Type Rollover IRA
IRAAccount
Individual Account
Totals
Account History (# of Days) 618 615 615 618
Number of Trades 79 316 3 398
Commissions $11,027 $49,293 $396 $60,716
Fees $297 $7 $95 $945
Total Cost $11,321 $49,850 $28,901 $61,716
Average Equity $157,612 $217,191 $28,901 $403,704
Total Transactional Volume $415,145 $1,933,737 $8,139 $2,357,021
Total Purchases $172,127 $1,112,719 $0 $1,284,846
Total Sales $243,017 $821,018 $8,139 $1,072,174
Turnover 1.0 4.5 0 3.2
Annualized Cost/Equity 4.24% 13.62% 1.01% 9.02%
Net Transactional Loss ($133,992) ($132,928) ($27,986) ($293,906)
Income Received $24,657 $26,048 $5,316 $56,021
Net Out Of Pocket Loss ($113,196) ($109,082) ($23,559) ($245,837)
12
Commissions = 32.5% of Account Equity!
o An investment product that:
o Does not expose investor to market risk.
o Has a guaranteed growth of 6% annually.
o Guarantees income of 7% annually.
o Provides instant income.
o Provides additional tax benefit (even when
purchased with IRA assets).
o A high cost variable life insurance product.
o A product whose value is directly tied to the market.
o An illiquid product.
o An annuitization feature that does not provide the
expected level of income.
o Selling away occurs when broker sells unapproved
securities without the knowledge of the supervising
broker dealer.
o Can take the form of providing investment advice “on
the side”, selling unapproved or even fraudulent
securities, or borrowing money from client.
o Violation of industry regulations.
o Currently, one of the most common forms of abuse.
o Unregistered securities.
o Money sent directly to broker or to the investment
entity. Money not sent through broker dealer.
o High rate of return and/or short payout term.
o Unprofessional documentation.
o Odd delays - “return of investment is delayed
because a shipment is stuck in customs”
o Transactional losses.
o Lost opportunity.
o Commissions paid.
o Early withdrawal penalties (annuities).
o Tax liabilities (withdrawals from IRA).o Early withdrawal penalties.
o Additional taxes and change in bracket.
o Attorneys’ Fees and Interest.o Provided by Statute in most states.
23
• Almost every account agreement with a broker
dealer compels disputes to FINRA Arbitration.
• Generally Less Expensive than Courto No depositions, interrogatories, admissions.
• Generally Faster Than Courto Limited motions practice.
• Six year Eligibility.
• Flexible.
• Final.
o Run a “BrokerCheck” Report through FINRAo http://www.finra.org/investors
o Run a “BrokerCheck” Report through FINRAo http://www.finra.org/investors
o Get it in writingo If broker uses words like “guarantee” or “promise”, ask him/her to put it in
writing.
o Send a confirming email to the broker AT HIS/HER FIRM ADDRESS.
o Monitor your accounto Failure to comply with “Promise” or “Guarantee”.
o Beware the “Unsolicited” trade confirmation.
o Review trade confirmations for large commissions or mark-ups/downs.
o Be proactiveo Bring problems to the attention of the branch manager.
o Put it in writing!
0.10
1
10
100
1k
$100k
1926 1936 1946 1956 1966 1976 1986 1996 2006
Ibbotson® SBBI®
Stocks, Bonds, Bills, and Inflation 1926–2013
Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1926. Assumes reinvestment of income
and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in
an index. © 2014 Morningstar. All Rights Reserved.
$26,641
$4,677
$21
$13
$109
Compound annual return
• Small stocks 12.3%
• Large stocks
• Government bonds
• Treasury bills
• Inflation
10.1
5.5
3.5
3.0
10k
“Assumes reinvestment of
income and no transaction
costs or taxes.”
The Past 10 Years
2004–2013
Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 2004. Assumes reinvestment of income
and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in
an index. © 2014 Morningstar. All Rights Reserved.
0.50
$2.50
$1.27
$1.17
$2.04
$1.80
$2.43
1.00
2004 2006 2010 20122008
1.50
2.00
Compound annual return
• Small stocks 9.3%
7.4
• Government bonds
• Large stocks
• Inflation
• Treasury bills
6.1
2.4
1.5
o U.S. National Debt = $19.5 trillion
o U.S. Unfunded Debt = $127 trillion www.forbes.com
• Social Security, Medicare, Obamacare
• $1.1 million for every U.S. taxpayer
o Yield on 10 Year Bonds is near zero and in some countries below zero
www.Bloomberg.com
• Switzerland = -0.56%
• Japan = -0.07%
• Germany = 0.00%
• Netherlands = 0.10%
• U.S. = 1.75%
o IRS
o Lawsuits
o State of National Emergency (Senate Report 93-549)
• Seize Property, Institute Martial Law, Seize control of Transportation,
Seize control of Communication, Regulate operation of Private
Enterprise, RESTRICT TRAVEL
