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'Meal and pitch' get increased scrutiny

By HELEN HUNTLEY
Published April 9, 2006

The free meals that some investment advisers use to attract retirees and their money soon could be giving their sponsors heartburn.

Federal and state regulators say they're planning a crackdown on the lunch bunch in Florida.

"If we find that instead of a legitimate sales seminar and a free meal, seniors are being exposed to pitches for unsuitable products with high-pressure sales tactics, wild claims about the projected returns and no disclosure of the actual risks of an investment, we'll move in hard and fast," U.S. Securities and Exchange Commission Chairman Christopher Cox pledged in a recent speech to the Consumer Federation of America.

It's about time.

Cox said what I've known for years: "These sales pitches are anything but "free.' They come at a very high cost."

But regulators rarely have taken action. In one notable case three years ago, the National Association of Securities Dealers fined former Largo broker Earl Slossberg $25,000 for misleading sales pitches, including seminars. One example: the NASD said he used a slide in his seminars claiming a 12-month investment would earn 8 percent, but failing to disclose that the rate did not apply to the entire investment. The real return was 4.36 percent.

Cox said the SEC, the state and the NASD will work together to combat the problem and promised aggressive investigation and strong prosecution.

Just what's being pushed at these seminars? Mostly annuities.

The investment advisers promoting them often bill themselves as "senior specialists," said Patricia Struck, president of the North American Securities Administrators Association.

"Typically the specialist recommends liquidating securities positions and using the proceeds to purchase fixed, indexed or variable annuities products the specialist offers," she said.

Struck said the annuities often are unsuitable investments because of their high surrender charges, exposure to market risk or steep commissions.

My experience is that the worst products carry the highest commissions, which usually are not disclosed.

Your best bet: The next time a friendly sales person offers you a free lunch, just say no.

I have been saving EE bonds for my child's education for a long time. They did not have 529 plans when I started. College is two years away and I want to know if I should cash the bonds in and put the money in a Roth IRA, or is it too late and I should hold on to them? They have earned about $3,000 in interest and I know I will have to pay taxes on those earnings.

When it comes to education and tax breaks, nothing is simple.

First, there is a chance that you won't have to pay taxes on the interest your bonds earned. That is, there's a chance IF bonds were bought in your name not the child's after 1989 and if you meet income limits at the time the bond are cashed and if you have tuition expenses not paid by tax-free scholarships at least equal to the bond proceeds. Whew! You can read more about these rules online (www.publicdebt.treas.gov/sav/saveduca.htm)

One little wrinkle that few people know about is that you can cash your bonds to buy a Florida Prepaid College Plan, which counts as a tuition expense if you meet all those other requirements. The next enrollment period will be in October, when your child must be in 11th grade or lower to enroll.

If you don't think you'll be able to cash the bonds tax-free, but you do think your child will apply for need-based financial aid, think about cashing the bonds before January of your child's junior year in high school. That's because cashing them in later will increase your income during years reviewed to determine financial aid eligibility.

If you don't think your child will qualify for financial aid, hold onto the bonds until you need the money. While I love Roth IRAs, they are not a good choice for money you need in just a few years.

Watch out for phishy IRS e-mails

The IRS will not send you an e-mail about your tax refund. If you get an e-mail like that, it's a scam. If you get one, forward it to phishing@irs.gov and delete it from your mailbox. Don't expect an acknowledgment of your e-mail. The IRS says more than two dozen IRS-related phishing scams have been identified. These scams all start with an e-mail that appears to be from a bank or government agency. You're asked to click on a link that takes you to an official-looking Web site, where you are asked to enter personal information the scamsters can use to steal your identity and open credit cards in your name.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to hhuntley@sptimes.com to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or log onto www.sptimes.com/blogs/money where you also can see other questions and answers.

[Last modified April 9, 2006, 00:19:12]