You’ve no doubt heard about the massive demographic shift taking place in our country as the Baby Boomer generation retires. In 2040, an estimated 80 million Americans will be over the age of 65 and moving toward retirement. That’s twice the number of over 65 year-olds - or senior citizens - that we had in 2000. Meanwhile, these millions of aging Boomers have accumulated a enormous amount of wealth, more than any previous generation of Americans.
More recently, as our economy fought through one of the worst financial crises in our history, from 2007-2010 these same Baby Boomers/senior citizens experienced sharp reductions in gains from the conservative investments they were accustomed to. These investments included everything from real estate to certificates of deposit (CDs) to US treasury bonds.
High Levels of Wealth, Downward Yield Pressure
According to a recent report issued by regulators at the Financial Industry Regulatory Authority (FINRA) concerned that senior citizens may be getting steered in the wrong direction by broker-dealers and financial advisors who may not have their best interest in mind:
The combination of high levels of wealth and downward yield pressure on conservative income-producing investments may create an environment conducive to the recommendation of more complex, and possibly unsuitable, securities to senior investors as a means of replacing that income stream. Staff is concerned that, after a lifetime of accumulated savings, senior investors may meet the financial and risk threshold requirements to invest in more complex financial securities and that broker-dealers may be recommending unsuitable transactions to these senior investors or may not be providing proper and understandable disclosures regarding the terms and related risks of those recommended securities, particularly non-traditional investments.
Figuring Out Whether Your Investments Are Suitable
In many cases, seniors don’t realize their investment portfolios no longer reflect the risk-tolerances and investment objectives they indicated in their broker-dealer account opening documents. On your account statements, your investor profile may not change. It may still be labeled “Conservative” or “Moderate-risk” while the actual investments or overall allocation of investments you hold are anything but conservative or moderate. Indeed, regulators and investors alike are seriously worried that senior investors and their investments are no longer suited for each other.
In pursuing higher returns, senior investors are often guided into financial products that are too complex and risky for them by broker-dealers who put themselves in front of their customers. Regulators have long censured individual financial advisors who recommend unsuitable investments for customers; now they are beginning to target entire brokerage firms that do it.
Again, it can be very difficult for novice or unsophisticated investors to determine if their portfolio is suitable for them. Fortunately, FINRA now offers a hotline for senior investors who are unsure about their accounts or their brokers. In addition, there are numerous resources online to help you better understand what you’re invested in and why. Finally, don’t be afraid to ask your broker directly to explain his or her choices of investment for you. After all, while sometimes it might not seem like it, they work for you and not the other way around.