According to opinion columnist David McPherson writing on ABCnews.go.com, certain unscrupulous financial advisers pitch a scenario to employees of major corporations. The pitch is quite attractive: You can retire early (while in your 50’s), cash out your retirement plan, and live off 12 percent annual returns.
These brokers use unrealistic investments projections to convince prospects that they can retire comfortably when they are in their 50’s. The brokers earn fees and commissions on millions of dollars simply by convincing employees to collect a single lump-sum payment in lieu of guaranteed monthly pension benefits.
In April, the Financial Industry Regulatory Authority (FINRA) launched an effort to warn employers and employees of early retirement schemes that “promise more they can deliver.” Over the last two years, FINRA has disciplined two brokerage firms ? Securities America Inc., and Citigroup Capital Markets Inc. ? that had targeted employees of Exxon and BellSouth with similar schemes.
FINRA CEO Mary L. Schapiro said, “Companies don’t want to unwittingly help [schemers] lure their employees into cashing in their retirement investments early with misleading promises of big financial returns and comfortable retirement lifestyle that simply can’t be sustained.”
FINRA publishes a brochure for employees, advising them to be wary of free lunch seminars or pitches based on “little-known loopholes.” Entitled Early Retirement Seminars 101: Smart Tips for Spotting Retirement Scams, the brochure advises, “Promises like this usually hinge on unrealistically high returns on investments and unsustainably large yearly withdrawals.”
FINRA suggests that employers and/or employees should do the following to safeguard against retirement fraud:
- Do backgrounds checks of advisers offering retirement seminars;
- Review seminar materials and confirm that the advisers have their firms’ permission to offer the seminar;
- Understand the tax implications of early retirement and know the details of company retirement plans; and
- Be wary of claims that one may earn as much money in retirement as while employed.
To supplement these educational efforts, FINRA is even offering to review seminar materials that employers receive.