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Brokers Target Retirement Plans

America’s baby boomers are increasingly becoming targets for investment brokers who put their hard-earned “nesteggs” at risk.  

Many examples are emerging where retirees are losing significant funds from their pensions and 401(k) accounts because they are seduced into turning them over into high-fee investments that promise high returns. Studies show that as much as 69% of pre-retirees miscalculate how much money they can annually withdraw from their retirement accounts, which gives rogue brokers the opportunity to take advantage of these investors in order to generate more commissions. 

Brokers and brokerage firms gain access to groups of workers who are close to retirement through free seminars and advisory services offered through the workers’ employers. These presentations have the potential to be misleading for workers who have limited knowledge or experience investing money. Studies show that 10% of these so-called seminars have explicitly offered fraudulent advice and given unrealistic guarantees on high rates of return. 

In January, a group of Kodak and Xerox retirees from Rochester, NY, filed a class-action lawsuit against two of Morgan Stanley’s top brokers, Michael Kazacos and David Isabella, and branch manager Ira Miller. These Kodak and Xerox employees were advised to withdraw 10% from their portfolios annually with the promise that they would still have plenty of money leftover, perhaps millions, in their accounts.

Many other investment brokers in Rochester lost clients to Kazacos because they were capping the amount in which the employees could withdraw from their funds at 4%.  However, at 10%, many of these workers almost depleted their long-saved retirement funds. Some of these retirees are being forced to return to work again. Kazacos, Isabella, and Miller could face disciplinary actions for breach of fiduciary duties and using deceptive sales tactics.  

Morgan Stanley’s policy is to cooperate with the investigation and claims that many of the clients’ losses were caused by the market downturn of 2000-02 and other excessive withdraws from the clients. Investor attorneys have filed a number of arbitration claims on behalf of Kodak and Xerox employees.  

InterSecurities, a financial firm in St. Petersburg, FL, gave similar explanations to why some of its investors lost money from their retirement funds. Two of InterSecurities’ brokers were accused of promising a 13% return on investments made by a group of Kansas City Southern employees. These brokers earned a high commission of 7.25% for each investment sale.

Likewise, in 2006, 32 former ExxonMobil employees won $13.8 million in an arbitration case against Securities America because one of its top brokers told the employees that they would receive 18% return and still withdraw sums of money equal to their salaries. Since then, Securities America has greatly improved its oversight and policies.  

Investors should be on the lookout for brokers who recommend they withdraw money from their retirement plans in order to make other investments.  Oftentimes the only one who wins under these circumstances are the brokers themselves.

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