Board-certified financial planners work every day with consumers who seek advice on the most effective way to invest their hard-earned money to meet financial milestones. From paying college tuition to purchasing a home to saving for retirement and estate planning, consumers often rely on financial planners to provide them with sound advice.
Too often, we come across clients — particularly elderly clients — whose savings have dwindled due to scams and improper advice from people who claim to be financial planners but who lack competence or ethical oversight to ensure they act in their clients’ best interest. Most times, it is too late to recover their lost funds.
Unbelievably, some of these scams are permitted under law. The victims are given poor or dishonest advice by people claiming to be financial planners — the very people who should be looking out for their clients’ best interests.
Under law, financial planning is not regulated as a profession.
The financial reform package now under Senate consideration should include provisions that would establish straightforward regulation for the financial planning profession and would prevent these abusive scams. These provisions would create professionwide competency and ethical standards for anyone calling himself or her-self a financial planner. This is common-sense legislation that would fill a dangerous regulatory gap.
The Financial Planning Coalition, a group representing 75,000 financial planners and allied professionals, recently conducted a survey of its members to understand financial abuse. What they found was shocking: Nearly 59 percent of nearly 4,000 financial planners surveyed were aware of a client or acquaintance who had been a victim of financial abuse. The victims were overwhelmingly elderly.
Examples of common types of abuse included:
An elderly woman, easily confused and suffering from memory loss, attends a financial seminar and is convinced to transfer all of her investments into annuities — without being told that she will not have access to the funds for many years except under heavy penalties.
An 80-year-old married man, with an estate estimated at $500,000, is sold an equity-indexed annuity with a 17-year surrender period, meaning he cannot withdraw the money without paying heavy penalties.
An 87-year-old widow is convinced by an insurance agent-securities broker to sell her husband’s blue chip stocks and buy a $400,000 cash-value life insurance policy, placing the remaining proceeds in a trust controlled by the insurance agent-securities broker. The adviser then lent money out of the trust to himself and friends, and left it virtually emptied.
A stock broker “churned” a client’s account, meaning he or she frequently and continuously — and needlessly — bought and sold financial products for the sole purpose of earning considerable commission.
Today, any person can claim to be a financial planner and reap the benefits, including substantially increased compensation, which often accompanies the position of trust implied by the title. If this portion of financial reform becomes law, it would require anyone using the financial planner title to register after passing a competency examination and agreeing to ethical standards. An oversight board would have the authority to enforce rules and to hold accountable registrants who do not adhere to its rules.
I urge Maine Sens. Susan Collins and Olympia Snowe to endorse legislation that would protect Americans, particularly the elderly, from financial abuse. This needs to be simple, straightforward regulation that would fill the regulatory gaps that perpetuate abuse and allow anyone to represent themselves as a financial planner.
We need pro-consumer, commonsense financial planning regulation to establish transparency and accountability in the financial planning profession. This should be a nonpartisan issue, one designed to elevate the standards of a group of financial advice providers who now fly under the radar. The end result is that it will allow hardworking Americans — particularly the elderly — to obtain trustworthy financial advice, and to plan for the future with safety and confidence.
Anne C. Gibson is an Ellsworth-based certified financial planner professional.