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Letter to the editor

Free meals might bite back

Investment seminars are sales pitches, regulators conclude.

By HELEN HUNTLEY, Personal Finance Editor
Published September 11, 2007

You might get a free meal, but don't count on good advice or unbiased recommendations at an investment seminar, securities regulators said Monday. A yearlong review of seminars in Florida and six other states turned up some major problems.

"Not only were virtually all of the 'free lunch' seminars sales jobs in disguise, but half made misleading or exaggerated claims and more than a third led to unsuitable recommendations or outright fraud," said Securities and Exchange Commission Chairman Christopher Cox.

The SEC, the Financial Industry Regulatory Authority and state securities regulators teamed up to review 110 brokerage offices that sponsor investment seminars. Only five came through the scrutiny with flying colors.

Although frequently billed as educational with promises that nothing will be sold, the seminars were all designed to sell products. The most commonly touted: variable annuities, real estate investment trusts, equity-indexed annuities, mutual funds, private placements of speculative securities such as oil and gas investments, and reverse mortgages. Often, insurance or mutual fund companies paid expenses for seminars pushing their products, a fact that was not always disclosed.

Misleading pitches such as "how to receive a 13.3 percent return" and "immediately add $100,000 to your net worth" were common. In many cases, brokers did not get the required regulatory approval for their literature.

Perhaps most shocking, however, is the apparent fraud uncovered in 14 examinations. One of those cases led to civil charges last week against a broker in Hawaii, who is accused of selling securities without clients' knowledge and raking in $2-million in commissions on unauthorized transactions.

The Florida Office of Financial Regulation conducted nine of the exams, which uncovered problems with advertising, supervision and the suitability of investments. "We're currently in discussions with a number of firms in an effort to resolve these matters," said William Reilly, who heads the office's bureau of securities regulation. He wouldn't identify the firms facing further scrutiny.

Regulators are particularly concerned about seminars because they target seniors, using names such as "senior financial safety workshop" and offering advice on estate planning or retirement income. One survey found 60 percent of seniors have received six or more invitations to investment seminars in the past three years.

Regulators said brokerages should do a better job of supervising seminars and recommended practices such as using "mystery shoppers."

The probe focused on just one part of the problem: brokerage-sponsored seminars. Many investment seminars are presented by insurance agents and unlicensed financial advisers who have no one scrutinizing their seminar offerings.

The regulators said education about investments is crucial to fighting fraud and said they are doing more to reach out to older investors, including podcasts designed to get children to talk to their parents about fraud.

"It's remarkable and alarming how many times someone will give a lifetime of savings to a perfect stranger," said Karen Tyler, North Dakota's securities commissioner.

The Financial Industry Regulatory Authority said it intends to focus next on two other problem areas. One is the use of dubious professional designations that require no meaningful training, but suggest expertise and mislead investors. The other is early retirement seminars, often conducted in the workplace.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

How about these returns?

Here's how investment seminars stood up to regulators' review:

- 100 percent were sales presentations

- 59 percent revealed supervisory problems

- 50 percent featured exaggerated or misleading claims

- 23 percent made unsuitable recommendations

- 13 percent involved fraud

Source: U.S. Securities and Exchange Commission

[Last modified September 10, 2007, 22:37:47]