An examination of 44 broker-dealers by the Securities and Exchange Commission and the Financial Industry Regulatory Authority has found that while most seniors are purchasing simpler products like open-end mutual funds and variable annuities, some BDs are recommending unsuitable products to seniors.
Also, some reps could be violating FINRA’s rule on communications with the public by not tracking which reps use a senior designation, the regulators said.
In their National Senior Investor Initiative joint study released Wednesday, the SEC’s Office of Compliance Inspections and Examinations as well as FINRA staffers assessed whether broker-dealers were recommending riskier and possibly unsuitable securities to senior investors looking for higher returns or that such senior investors may be making financial decisions without fully appreciating the risks associated with those recommendations.
The coordinated exams of the 44 BDs were conducted in 2013 and zeroed in on how firms conduct business with senior investors as they prepare for and enter into retirement. The exams looked at investors age 65 or older.
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The exams also focused on the suitability of recommended investments, training of brokerage firm reps, marketing, communications, use of designations such as “senior specialist,” account documentation, disclosures, customer complaints and supervision.
SEC and FINRA staff found that the following were among the top eight revenue-generating securities at the examined firms based on sales to senior investors:
(1) Open-end mutual funds at 77% of the firms;
(2) Variable annuities at 68% of the firms;
(3) Equities at 66% of the firms;
(4) Fixed income investments at 25% of the firms;
(5) Unit investment trusts and ETFs at 20% of the firms;
(6) Nontraded real estate investment trusts at almost 20% of the firms;
(7) Alternative investments such as options, business development companies, and leveraged and inverse ETFs at approximately 15% of the firms; and
(8) Structured products at 11% of the firms.
The regulators noted that with the Social Security Administration estimating that each day for the next 15 years, an average of 10,000 Americans will turn 65, the report is designed to help broker-dealers “assess, craft or refine their policies and procedures for investors as they prepare for and enter into retirement.”