Baby Boomers at Crossroads Of Retirement, Planning

With the wave of Baby Boomer retirements expected to crest at around 73 million by 2030, ongoing concerns with how to protect senior wealth have grown since the largest generation in American history began reaching the age of 65 back in 2011.

Ground-level financial advisors as well as state and federal agencies are trying to make sense of, and add structure to, the seismic demographic shift that’s expected to have profound effects on America’s culture, politics, and economy for years to come.

As seniors and retirees continue to live longer, financial planners are not just ironing out fixed annual budgets for their clients, but figuring out how to leverage assets into dynamic income. And in regard to fraud, the ever-present bane of the financial industry, state and federal agencies maintain an ongoing campaign to protect vulnerable investors.

Among the many pitfalls that can bedevil a retiree are pump-and-dump scams sent through messaging apps, phony stock in new industries like e-cigarettes and legal marijuana, and penny stocks in dormant shell companies. Add to that the volatility in the Chinese stock market, fake websites to ensnare the gullible, cold calls from fraudsters, and the venerable hard sell with the “free lunch” investment seminar, and senior investors face a hostile world.

In response to the increasingly uncertain landscape seniors must traverse, the Financial Industry Regulatory Authority in April opened a senior hotline for those who need assistance with brokerage accounts and investments. Since that time, FINRA has received over 1,500 calls for a variety of reasons, including fraud.

In recognition of the problem, FINRA is proposing that financial institutions be allowed to place a hold on the disbursement of funds or securities and notify a customer’s trusted contact when the firm has a reasonable belief that financial exploitation has occurred. The holds would apply to accounts held by people aged 65 and older. The proposal must first go through FINRA before heading to the Securities and Exchange Commission for final consideration. 

In its 2015 Regulatory and Examinations Priorities letter, FINRA estimates that between 2012 and 2030, the number of Americans aged 65 and older will increase from 43 million to 73 million, or about 18 percent of the entire U.S. population. With those kinds of numbers looming, FINRA has made protection of seniors an ongoing priority, and in its annual letter, was blunt in its assessment of, and expectations for, the financial services industry.

“The consequences of unsuitable investment advice can be particularly severe for this investor group, since they rarely can replenish investment portfolios with fresh funds and lack time to make up losses,” the letter states. “FINRA urges firms to review their procedures to identify ways they may be able to improve their treatment of senior investors.”

 

Remain Diversified

There are 2,547 stock brokers and 1,622 investment advisors living in Arkansas, according to the Arkansas Securities Department. And they are all asking the same basic question, says Bob Williams, senior vice president and managing director at Simmons First Investment Group in Little Rock.

“Where do you safely deploy the capital?” he said. “Every investor and advisor in this country is asking the question, and it’s a difficult one.”

With more than 30 years of experience as a financial advisor, Williams has seen just about everything, including the way in which seniors can be exploited.

“The bad guys are getting worse,” he said. “I’ll offer an opinion on any outside investment that a client is willing to make. Sometimes I tell them it’s too good to be true, but sometimes I tell them it’s a great deal.”

A key concern for seniors is tied to the ongoing improvements in health care, which prolong lives, and, prolong expenditures. The result is that clients and those who advise them must look harder and farther afield for investments that can bring high yields in a time when low interest rates bring small margins.

At the end of 2014, there were only 101 companies in the United States that brought a dividend yield of more than three percent, Williams said. But globally, there were 296 companies when emerging markets were considered, and 356 companies when including Europe and Canada.

For Williams, the math is simple.

“You have to remain diversified,” he said. “In order to have a truly diversified portfolio, you have to diversify by industry and continent.”

At 55, Williams is a Baby Boomer, as are many of his clients. One of the consistent issues they grapple with is the 401(k) and the 401(b), employee-sponsored retirement accounts, and whether or not, or how to, roll them over into individual retirement accounts, also known as IRAs, to maximum benefit.

“You definitely want to examine your options,” Williams said.

As complex as the world of retirement investments can be, clients still circle back to a basic question that’s been asked for decades, Williams said.

“How am I ever going to make enough money to live off of?”

 

Cold Calls

Across the country, the financial market for seniors and retirees is intense, and oftentimes, too intense. Such was the case in 2013, when California brokers Fernando Arevalo and Jimmy Caballero, both of JP Morgan Chase Securities LLC, were accused of bilking an elderly widow with diminished mental capacity out of $300,000.

The brokers, who convinced the client to sell two annuities and deposit the proceeds in a joint bank account, which they then raided for their personal benefit, were barred from the securities industry. Though JP Morgan played no part in the fraud, the company reimbursed the victim.

In Arkansas, the financial danger faced by seniors is perhaps best embodied by someone like Timothy Alonza Lilly of Mayflower. In 2008, he was issued a cease and desist order by the Arkansas Securities Department for several reasons, including passing himself off as a Certified Senior Advisor and as a Certified Retirement Financial Advisor, when he was neither, and for recommending that a married couple near retirement age rollover its 401(k), IRAs and CDs into the purchase of a 10-year equity indexed annuity.

Lilly’s company, Covenant Senior Advisors LLC, was slapped with an $18,000 judgement in 2010, though it’s not clear if the judgement was tied to the case cited by the commission.

Lilly, however, was not done. The commissioner sent him yet another cease and desist letter earlier this year. In the second letter, the commissioner says Lilly was trying to sell an interest in his company, BLW Debt Resolution LLC, even though he was not registered with the state to conduct such a transaction.

The case is still under investigation.

State securities commissioner B. Edmond Waters said seniors face many challenges, chief of which are low investment yields in a time of rising health care costs, and chasing high returns without realizing the risks involved.

A tonic for much of what ails senior investors, Waters said, is vigilance.

“Seniors often invest with people who cold call with offers simply because it is someone who is friendly,” he said. “Cold callers sometimes use an affinity angle or religion to gain the trust from seniors. We ask that people call the securities department to check out the investments and the individuals making the offers before writing checks or opening accounts.”

Despite the challenges they face, the Baby Boomers are a huge force in the economy, and locally, their presence can be seen in a place like Butterfield Trail Village, the 44-acre retirement community on Joyce Boulevard in Fayetteville. A 26,000-SF convocation center is in the works, and in the recent past, the facility added an 8,670-SF aquatic center, a 9,000-SF assisted living cottage, and a dining hall.

Retirement blogger Tom Sightings, whose column runs in U.S. News and World Report, pointed to the Baby Boomers and their impact on the economy. Aside from their own investments, he said the generation itself represents a great opportunity for investors looking at industries like orthopedics, emergency medical services, cruises, and anti-aging products.

“By the time all the Baby Boomers retire, some 78 million Baby Boomers will have cashed billions of Social Security checks, swallowed trillions of Advil and survived myriad hip replacements and heart transplants,” he wrote in a February blog post. “Along the way they will be managing their finances through asset managers and mutual funds. And before it’s over many will have bought long-term care insurance, done time in a senior citizen facility and dropped an average of more than $8,000 for a funeral.”