An immigrant from Central America, she retired from AT&T in 2003 with an IRA set up by Tarr. Afterwards, they often discussed investments over coffee at Lew’s kitchen table, as her prized green parrot squawked in a cage with a sweeping view of the parched hills surrounding San Francisco.
Lew started her withdrawals at $2,000 a month, then bumped them to $2,500. Lew said Tarr blessed the move — something Tarr disputes, saying she had warned against it.
By 2010, Lew noticed losses in her account. Her REITs have plunged $145,000, according to Sommers. To make ends meet, she is caring for neighbors’ children. She will run out of money in three or four years, which could force her to sell her house.
One of the biggest ongoing scandals in all of financial services is the fact that broker-dealers refuse to submit to a fiduciary standard of care when handling America’s retirement accounts, like IRAs. For the uninitiated, a fiduciary standard of care means that the registered representative would be required only to give investment advice that was in the client’s best interest, at all times and from all perspectives. Brokers operate under a more, shall we say, creative standard of care known as “suitability”. Meaning they can sell products that roughly match with the customer’s financial profile, even if they’re not necessary the best possible alternative available.
As a result, registered pigs like those in the story I’m about to point to are able to sell garbage products with obscene fees and dangerous risk factors to rank-and-file UPS workers and AT&T retirees upon the rollovers of their 401(k) accounts. “Well, the client was suitable!”
I will never not be angry about this when I see these stories. This is not me being sanctimonious – I wrote a book about the stuff I used to sell as a broker – it’s that Congress is being swayed from acting by the intensity and the largesse of Wall Street’s lobbyist machine from protecting the most vulnerable, least informed investors in the country.
Bottom line: brokers selling private placements, limited partnerships, non-traded REITs. variable annuities inside of IRAs and other Murder Holes to unsophisticated retirees has to stop. Now.
Read this and see how long you can go without dry-heaving: