SEC Targets Investment Traps Set For Seniors

The Securities and Exchange Commission is cracking down on investment seminars aimed at taking advantage of seniors, SEC Chairman Christopher Cox announced Friday at the annual consumer assembly of the Consumer Federation of America.

The Securities and Exchange Commission is cracking down on investment seminars aimed at taking advantage of seniors, SEC Chairman Christopher Cox announced Friday at the annual consumer assembly of the Consumer Federation of America.

The move against the “free lunch”, as they are generally called, is part of a larger initiative launched to protect senior citizens from investment scams and unsuitable recommendations. “When it comes to protecting the most vulnerable of our ordinary investors, no group is more at risk, or has a greater impact on our entire economy, than older Americans,” said Cox in his speech. “As this segment of society grows, both in numbers and in vulnerability, our focus on seniors is steadily increasing. In the last two years alone, we’ve had 26 enforcement actions aimed specifically at protecting elderly investors.”

The regulator says it will attempt to remedy the situation through investor education, aggressive enforcement and targeted examinations. The SEC plans to coordinate with other regulators, including SROs and state securities regulators, sharing information about investor complaints and advisory and brokerage firms that cater to seniors.

Examinations will focus on “recommendations of securities that may be more risky, or include higher fees than other products,” the SEC wrote in a release, like “purportedly high yield or ‘guaranteed’ products, on sales of variable annuities, and on sales of hedge funds.” They will also focus on how seniors are drawn to sales pitches through sales literature and promotions, and, especially “free lunch” seminars. Florida, home to so many senior citizens, will be a top priority, said Cox.

In other regulatory news, the Financial Planning Association went ahead with its lawsuit against the SEC Thursday, challenging the broker/dealer rule, which exempts certain broker/dealers and their advisors from the fiduciary requirements of the Investment Advisers Act of 1940.

The FPA filed its claims in a brief Thursday in the U.S. Court of Appeals for the D.C. Court, saying the final rule favors broker/dealers and puts investors at risk. FPA said the CFA, as well as the North American Securities Administrators Association and Fund Democracy would soon be submitting their own briefs in support of the trade group’s position. The SEC declined to comment on the lawsuit.

On April 19, the SEC adopted the final broker/dealer rule that the FPA is challenging, which exempts brokers from fiduciary duty as long as they are not providing discretion on the account in question, nor offering a financial plan or holding themselves out as financial planners. A week later, on April 28, 2005, the FPA filed a petition to challenge that final broker/dealer rule. For more on this topic, check out these Registered Rep. stories:

Both Sides Now: http://registeredrep.com/mag/finance_sides/index.html

Brokering Advice: http://registeredrep.com/mag/finance_brokering_advice/index.html

Merrill Rule Debate Not Over: http://registeredrep.com/news/sec-merrillrule-debate/index.html

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