According to this article from Bloomberg News, Raymond James dismissed 200 employees as a result of its purchase of Morgan Keegan & Co., Inc. earlier this year. Two thirds of those who were cut were Morgan Keegan employees in the fixed income and equity capital markets whose jobs overlapped with Raymond James employees', according to the article. Regions Financial Corporation sold Morgan Keegan to Raymond James after Morgan Keegan was sanctioned by regulators, including FINRA and the SEC, for fraudulent sales of the RMK family of bond funds.
According to this article on law.com, the Financial Industry Regulatory Authority (FINRA) reported an increase in discplinary actions and fines during the year 2011. FINRA, which oversees brokerage firms, stepped-up its enforcement, with nearly 1,500 actions filed in 2011. According to the article, FINRA banned 329 individuals from practicing in the industry during 2011, up from 288 in 2010.
FINRA identifies five primary areas of enforcement concern: advertising, short selling, auction rate securities, suitability, and improper filings. FINRA's suitability rule requires that a brokerage firm have a reasonable basis for recommending a customer's purchase or sale of a security. In 2011, FINRA reported $7.7 million worth of suitability fines from 106 cases involving suitability allegations (up from 53 such cases in 2009).
Even with Lehman Brothers in Bankruptcy Court, investors who sustained losses in Lehman Brothers Principal Protected Notes still have options for recovery, according to this article on the Market Watch section of the Wall Street Journal online. Overall, the article contends that investors who file an individual securities arbitration claim achieve the highest rate of recovery.
While some investors have filed claims in the Lehman Brothers bankruptcy proceedings, this route typically leads to recovery of only around 21 cents per dollar lost, according to the article. Another option would be to join the class action suit filed against UBS Financial relating to the losses from the Lehman Brothers 100% Principal Protection Notes. However, the article notes that recovery via class action may yield only a nominal amount.
According to the article, the study concluded that those who filed an individual securities arbitration claim traditionally had the highest rate of recovery.
To repay a $3.5 billion taxpayer bailout, Regions Bank has announced plans to sell $900 million worth of common stock, according to this article from Bloomberg Businessweek. While most of the biggest U.S. banks already returned bailout funds, Regions was among the worst performers in the KBW Bank Index (BKX) in 2008 and 2009 as defaults contributed to four straight years of losses totaling $7.7 billion for common shareholders, according to the article.
In January, Regions sold the Morgan Keegan & Co. brokerage unit to Raymond James Financial Inc., under terms that were expected to generate proceeds of $1.18 billion for the bank. Morgan Keegan was the subject of state and federal investigations and sanctions arising out of its misrepresentations and omissions in the sale of the Regions Morgan Keegan (RMK) family of bond funds. Investors in those funds should have received information from the regulators' "fair fund" management company, A.B. Data, regarding how to apply to recover some or all of their lost investment through the fair fund.
Unlisted, or non-traded, REITS differ from listed REITs in that they are not traded on an open market. Rather, non-traded REITs are sold to investors who then hold the product until the end of an investment term.
The value of a non-traded REIT is set by the very companies which sells it. Unlike a listed, or public, REIT which is valued daily based on the market in which it is traded, a non-traded REIT's value is determined by the staff of the REIT, or sometimes by a third party consultant paid for by the REIT.
Non-traded REITs also force investors to sell their shares through the REIT's own procedure. The usual procedure is to sell shares through a redemption program, however, many such programs have been suspended due to adverse financial conditions when many investors attempt to redeem their shares at once. The consequence to investors is that they are stuck in the investment until the redemption program is reinstated.
Morgan Keegan must repay the financial losses of three Georgia RMK Fund investors, plus forum costs, according to the January 18, 2012 Order of an arbitration panel of the Financial Industry Regulatory Authority (FINRA), which heard the case in Atlanta, Georgia.
The Claimants are among thousands of investors who lost money as a result of Morgan Keegan's fraudulent conduct in connection with the RMK (Regions Morgan Keegan) family of bond funds. The claimants were represented by attorney Richard S. Frankowski of The Frankowski Firm.
Morgan Keegan must repay the financial losses of two Alabama RMK Fund investors, plus attorneys' fees and forum costs, according to Orders from Arbitrators with the Financial Industry Regulatory Authority (FINRA).
The Claimants are among thousands of investors who lost money as a result of Morgan Keegan's fraudulent conduct in connection with the RMK (Regions Morgan Keegan) family of bond funds. The claimants were represented by attorneys Robert E. Norton and Richard S. Frankowski of The Frankowski Firm, LLC in Birmingham, AL.
The awards of $25,000 plus attorneys' fees and costs represent the maximum allowable award to claimants in FINRA's "simplified" proceedings.
Morgan Keegan must repay the financial losses of fourteen RMK investors, attorneys' fees and the costs of the proceeding, according to the January 30, 2012 Order of an arbitration panel of the Financial Industry Regulatory Authority (FINRA) which heard the case in Birmingham, Alabama.
The Claimants are fourteen out of thousands of investors who lost money as a result of Morgan Keegan's fraudulent conduct in connection with the RMK (Regions Morgan Keegan) family of bond funds. The Claimants were represented by Attorney Howard Prossnitz, of Chicago, IL and Richard Frankowski, of The Frankowski Firm in Birmingham, AL.
One of the funds at issue in the case, the RMK Select Intermediate Bond Fund, is the subject of a now infamous "smoking gun" May 2007 e-mail from Gary Stringer, investment director of Morgan Keegan's Wealth Management division, who stated: "Mr. & Mrs. Jones don't expect that kind of risk from their bond fund. . . . I'd bet that most of the people who hold that fund have no idea what's it's actually invested in. I'm just as sure that most of our [Financial Advisors] have no idea what's in that fund either."
Behringer Harvard Opportunity REIT I dropped in value at the end of 2011, according to this article from investmentnews.com. The value per unit of the non-traded REIT went down to an estimated $4.12 per unit value, down from $7.66 a unit value from the previous year.
The reduction in value for the Opportunity REIT I was not the only hit Behringer Harvard saw in this most recent evaluation. The Behringer Harvard REIT I dropped in value $5.36 per unit, going from a value of $10 in 2010 to a value of $4.64 in 2011. Also, the Behringer Harvard Short-Term Opportunity Fund I LP dropped from a value of $6.48 all the way down to $0.40 per share
According to this article, many large broker-dealer firms have stopped selling the firm's Multifamily REIT. There are also many firms that have completely stopped doing business all together with Behringer Harvard.
According to this article at Reuters.com, the Securities and Exchange Commission will no longer let companies settle civil cases with no admission of wrongdoing if the company has already admitted wrongdoing in a parallel criminal case.
This change comes after previous cases where a civil defendant, after admitting guilt in a criminal case, was allowed to include "neither admits nor denies" language in civil settlements with the SEC.
One notable example cited by the article was Bernie Madoff, who plead guilty to criminal charges in 2009 revolving around his participation in an historic Ponzi scheme, yet was permitted to neither admit nor deny the civil allegations against him in an SEC settlement.
Read the entire article at the following link: http://www.reuters.com/article/2012/01/06/us-sec-policychange-idUSTRE8051VB20120106
Variable annuities are growing in popularity among seniors, which is concerning given that variable annuities don't make sense for most investors. The detriments associated with variable annuity vehicles far outweigh any alleged benefits conferred upon the investor. Here are some of the drawbacks to variable annuities:
- Income deferral is utterly irrelevant when the annuity is held in an IRA or 401(k).
- The growth of an annuity is fully taxable as income. When the owner decides to begin taking money, either as a stream of income or as a lump sum payment, the income will be taxed at ordinary income rates. This is the case for the owner or his or her heirs. When compared to the growth of index funds, which are taxable as capital gains to the investor and subject to zero income tax to heirs, the detriment of the variable annuity becomes obvious.
- Variable annuities are very expensive investment vehicles, and have fees, as well as charges for mortality insurance associated with them. Typically, variable annuities have an investment management charge of .25 to 1 percent (or higher) per year. They also have a Mortality and Expense (M&E) fee of 1 to 1.5 percent. Furthermore, the mortality insurance only pays if the investment diminishes in value AND the investor dies before he or she annuitizes. The annuities that defendants recommended for the Claimants included contingent deferred sales charges, administrative charges, mortality and expense risk fees, service charges, and other portfolio expenses.
- Annuities promise a guaranteed income for life, however, if the investor chooses to annuitize the contract, two things happen. First, the investor sacrifices the principal, and when he or she dies, zero will be left to his or her heirs unless special coverage is purchased at additional costs. Also, if the investor wants to take cash out for any reason, he or she can't because the money belongs to the insurance company, and is no longer the investor's. Second, in exchange for giving the insurance company all of the investor's money, the insurance company promises to pay the investor a certain amount for a long as he or she lives. However, the amount the insurance company pays is typically extremely small.
- Beneficiary designations are irrelevant when the variable annuity is inside an IRA or 401(k) plans because these plans already provide for beneficiary designations outside of probate.
- The fees, charges, and expenses associated with variable annuities typically are not detailed on monthly, quarterly, or annual statements. In fact, many firms include a line item for "fees" and fail to include the fees that are associated with the variable annuity. The reason these fees are not included is due to the fact that firms take the fees and charges out of the vehicle's growth prior to distribution. In other words, the charges are netted out of the gross amount of growth, whatever is left is then detailed on performance statements. Because of this procedure, the fees associated with variable annuities are hidden, and investors are unable to see the actual costs associated with the variable annuities.
- The sub-accounts that make up the investments in a variable annuity have their own fee/expense structures that further increase the costs associated with variable annuities.
The financial press has also highlighted the detriments of variable annuities:
- "Although variable annuities can pay off in very limited circumstances..., most investors will do better buying and holding mutual funds outside rather than inside this tax shelter." - Don't Let the Bells and Whistles Distract You, Kiplinger.com, December 3, 2001
- "Do you want proof positive that investors are irrational? Here it is: Sales of variable annuities went up 16% last year, to $85 billion. A variable annuity is a mutual fund-type account wrapped in a thin veneer of insurance that renders the investment earnings tax-deferred. The tax deferral is just about the only good thing you can say about these investment products. Almost everything else about them is bad: the high - sometimes outlandishly high - costs, the lack of liquidity, the fact that the annuity converts low-taxed capital gains into high-taxed ordinary income. That tax deferral comes at a very high price." - The Great Annuity Rip-Off, Forbes Magazine, December 6, 2001
- "...[A]nnuities are actually a lot more complex and have downsides that salesmen may not mention. The higher fees of most annuities can often cancel out their tax advantages; most annuities lock in investors for years; and annuities saddle heirs with higher taxes, unlike mutual funds or most other investments. For these reasons, many investment experts say annuities are usually unsuitable for most older investors." - At Annuity University, Agents Learn How to Pitch to Seniors, Wall Street Journal, July 2, 2002
- "The death benefit, which usually costs more than $1000 for a $100,000 account, isn't going to help you if the market tumbles while you're still alive. Companies that guarantee your principal while you are alive often charge another $1000 a year on a $100,000 account. Yet the chances of your benefiting are almost nil." - Why Variable Annuities Are Just For a Few, Kiplinger.com, March 30, 2003
- "Many experts view variable annuities, a tax-deferred investment vehicle with an insurance contract, as inappropriate for elderly clients because of high fees and because the products' tax benefits generally are realized only over decades. Customers also pay steep 'surrender' fees for taking money out early." - State's Annuity Investigation Widens, The Wall Street Journal, February 18, 2005
- "Of course, I can't blame my grandmother for not understanding what she bought. These are complex insurance contracts larded with bells and whistles that make them enticing and expensive, and often misunderstood by the very people selling them." - An Annuity For Grandma? Say It Isn't So, The Wall Street Journal, March 6, 2005
- As annuity sales practices come under greater scrutiny, the National Association of Securities Dealers is taking a closer look at its policy on sales contests, a common promotional tactic for the insurance product. To encourage the sale of annuities, financial-services companies and insurers often offer salespeople financial rewards and other prized through contests. As long as the contests are conducted within NASD guidelines, broker-dealers don't have to disclose to their clients that they're participating in a contest based on generating the most annuity sales." - NASD Rethinks Its Policy On Annuity Sales Practices, The Wall Street Journal, March 22, 2005
- "The World's Lousiest Estate Planning Vehicle - There's no getting around the income tax due on annuities. In fact, if you die with money remaining in your annuity, your beneficiary will inherit all the taxes that you have deferred. Compare this to a mutual fund, whose basis is stepped-up at death. In that case, your beneficiary would owe no taxes on the gains." - What's Wrong With Variable Annuities, SmartMoney.com, 2005
- "Anytime anyone criticizes such shenanigans, annuity sellers rush to counter with claims that variable and fixed deferred annuities help retirees defer taxes and their heirs avoid probate. Both claims are true. But does that mean retirees should put their nest eggs in an annuity? In general, no, say financial planners and independent insurance consultants. And annuity experts at TIAA-CREF, the New York retirement-services company that created the variable annuity in 1952, agree. In short, the tax consequences and long holding periods necessary to make a variable annuity attractive don't make sense for retirees. (Also, many annuities often pay big commissions to brokers, who often aren't forthcoming about their financial interests.)" - When Putting Your Nest Egg Into an Annuity Makes Sense, The Wall Street Journal, March 30, 2005
- "Annuity sales can be highly lucrative. Commissions can reach 12 percent of the money invested, far greater than fees typically generated on stocks and other investments. Mr. Ragazzo, the deputy attorney general of California, said his office had found that some companies selling annuities sponsored trips to Hawaii and Europe for top agents. 'Some of these guys are former used-car salesmen bringing in $600,00 a year,' he said." - Who's preying on Your Grandparents? The New York Times, May 15, 2005
Some of our recent entries have focused on awkward questions to ask your financial adviser, and questions to ask your adviser before buying a mutual fund or variable annuity product: the following are good questions to ask about any investment. They will help you determine the validity and value of both the investment in question and the brokerage firm with which you are dealing. You should always write down the responses you receive. Remember that brokers are supposed to work for YOU, so do not hesitate to get as much information as possible.
- Is this investment product registered with the SEC and my state securities agency?
- Does this investment match my investment goals?
- Why is this investment suitable for me?
- How will this investment make money?
- Specifically, what must happen for this investment to increase in value?
- What are the total fees to purchase, maintain, and sell this investment?
- Are there ways that I can reduce or avoid some of the fees that I'll pay?
- After all the fees are paid, how much does this investment have to increase in value before I break even?
- How liquid is this investment? I.e., how easy would it be to sell if I needed my money right away?
- What are the specific risks associated with this investment?
- What is the most I could lose?
- Does this product or investment have a surrender charge or a contingent deferred sales charge?
- Where can I get more information about this investment?
Getting as much information as possible before making an investment or starting a relationship with a securities firm will hopefully help you avoid the need of a securities attorney because of an invesetment gone bad.
Variable annuities are very tricky investments. They are not suited for everyone. You must be sure to get as much information as possible when researching variable annuity products. Focus on questions relating to fees, penalties, lock-in periods, and surrender charges. For example:
- With my retirement goals, how soon will I need this money?
- In my current financial situation, do I have enough money to purchase this product?
- What Ill I lose if I exchange this product at a later date?
- What percentage of my assets is appropriate for an annuity given my retirement objectives?
- What does the annuity guarantee?
- What are all the fees associated with this annuity?
- What is the best risk tolerance for my goals?
- How do the surrender charges work?
- When will I be able to access my money in the annuity for no extra cost?
- To whom do you usually suggest variable annuities?
- What percentage of my original investment is it possible to lose in this annuity?
- Do I need an annuity if I already have a 401(k) or an IRA?
This list of questions relates to the purchase of mutual funds. It is important that you find out all of the information needed relating to the specific fund(s) you are looking to purchase. Risk, previous performance and fees are key topics to ask about when looking to invest in mutual funds.
- How has this fund performed over the long run?
- Where can I get an independent evaluation of this fund?
- What specific risks are associated with this fund?
- What types of securities does the fund hold?
- How often does the portfolio change?
- Does this mutual fund invest in any type of securities that could cause sudden and drastic changes to the fund's value? (For example, derivatives?)
- How does the fund perform compared to other funds of the same type or to an index of the same type of investment?
- How much will the fund charge me when I buy shares?
- Is the fund portable? If I move my assets to another firm, will I be able to continue holding the fund or will I need to liquidate it?
- How many fund classes are available in this fund family? What is the difference between them?
The Frankowski Firm, we represent people and organizations who have lost money due to fraudulent or unsuitable investment recommendations. U.S. News Money has some suggestions for questions to ask your financial adviser early in your relationship, so that hopefully you can avoid one day needing the help of a securities attorney. Among other things, the article says investors should ask the following:
"1. Ask the manager to explain his or her strategy. If the explanation sounds too complicated or the manager can't explain it in layman's terms, be wary.
2. Get to know the manager and his or her personality before you commit.
3. Ask for a resume and even consider calling former employers to ensure accuracy. (Yes, you are allowed to do this.)
4. Ask whether the professional tends to work with people your age and at your income level.
5. Ask whether there have been regulatory inquiries into the individual or the firm, noting that if they fudge the truth, you will be able to check. This can be a good measure of honesty very early in the process.
6. Ask if the firm will cover fraudulent or even unethical actions by an individual it employs.
And the biggie, which you should ask yourself: Do these returns or other benefits sound too good to be true?"
The entire article can be found at: http://money.usnews.com/money/personal-finance/articles/2012/01/18/awkward-questions-you-need-to-ask-your-financial-adviser