SEC Holds Second Annual Senior Summit

The Securities and Exchange Commission (SEC), in conjunction with AARP, the North American Securities Administrators Association (NASAA) and the Financial Industry Regulatory Authority (FINRA, formerly the NASD), held the second annual Senior Summit on September 10, 2007, to foster cooperation among regulators and encourage them to identify and stop investment scams targeting senior citizens.

At the meeting, the SEC released a report compiled by the SEC, FINRA and state securities regulators detailing the activities of 110 securities firms that hold "free lunch" investment seminars aimed at senior citizens. The report found that:

• Although the seminars were advertised as "educational" and that "nothing will be sold," all of the seminars were in reality sales presentations;
• The securities firms had not properly supervised the seminars in over half the cases studied; and
• Unsuitable recommendations had been made at one-quarter of the seminars.

In announcing the report, SEC Chairman Christopher Cox commented, "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 had unsuitable recommendations or outright fraud. The SEC and our fellow regulators intend to put a stop to this."

At the meeting, the SEC also announced it had approved new FINRA Rule 2821 governing the sale of deferred variable annuities. (See the related story, "SEC Approves FINRA Rule on Sales of Deferred Variable Annuities.")

Two issues that were key topics of discussion during the Summit were the use of designations that imply (and in some regulators minds, misrepresent) a level of expertise in senior affairs and the inappropriate and unsuitable sale of investment products—particularly variable annuities—to seniors.

At the meeting, FINRA announced it was initiating a "regulatory sweep" to examine whether brokers and their reps were "using so-called 'professional' designations to mislead and defraud investors." A FINRA news release stated that "FINRA is concerned about the proliferation of professional designations, particularly those that require no meaningful training or specialized knowledge but suggest an expertise in retirement planning or financial services for seniors." FINRA indicated the sweep could lead to a new FINRA rule proposal on the use of designations. FINRA also announced it had issued a Regulatory Notice to member firms urging them to scrutinize the suitability of their sales to seniors and reminding them that current FINRA rules prohibit the misleading use of designations.

Back to October 1, 2007, NAIFA Frontline