Posts Tagged "advisors"

Businessman carrying white mask - business fraud and faking concept

Cautionary Tale of Defrauding the Elderly

Two Morgan Stanley investment advisers agreed last week to plead guilty to stealing nearly $500,000 in a set of schemes that took particular aim at their elderly or retired clients, the U.S. Department of Justice charged. One client is in his mid-80s.

Multiple allegations detailed in the federal complaint demonstrate the creative ways that trusting older individuals might be deceived. For example, the Justice Department (DOJ) indicated that college tuition may have been the auspice or motivation for adviser and broker James S. Polese’s alleged fraud to obtain $320,000 from the client in his 80s – labeled Client B in the complaint.

The allegations included that Polese, age 51, knew a $50,000 loan from Client B for his children’s college expenses was prohibited by Morgan Stanley and was “a conflict of interest between the client and his adviser,” said the complaint, which was filed last week in U.S. District Court in Boston.

Polese and Cornelius Peterson, who both live in the Boston metropolitan area, also worked together to divert money from Client A and also a Client B to a failed wind farm investment without their knowledge, the complaint said. A third client allegedly paid inflated fees.

The brazen allegations in this case come amid reports that financial fraud against the elderly is on the rise. Retired people with nest eggs can be enticing targets for scam artists, and the elderly are “likely financially vulnerable” if they are experiencing cognitive decline, one study said. Further, a trusting senior might have more difficulty detecting financial deceptions that involve complex transactions. (Little detail about the clients’ personal situations was disclosed in the court documents.)

Morgan Stanley said that it fired Polese and Peterson in June 2017 immediately after uncovering the fraudulent activities and “referred the misconduct to regulatory and law enforcement agencies.” The two are registered brokers, and the Securities and Exchange Commission was involved in the investigation. The brokers agreed to plead guilty, said a statement from the U.S. Attorney in Massachusetts. A plea hearing is scheduled for February 15.

Client A and Client B were involved in the wind farm investment, the complaint said: Client A lost $100,000 after Peterson made “false statements” to his employer “when he signed a form stating that Client A had verbally authorized the $100,000 [wind farm] investment.” Client B, a businessman, was unaware that his funds were being used to support the wind farm, in the form of a loan account that could be used as a collateral backstop to the project, according to the charges. Although the funds were never used, Client B’s money was nevertheless put at risk, DOJ said, and he paid $12,000 in fees associated with the transaction.

Boston attorney Carol Starkey said her client, Peterson, age 28, was a “minor participant” and noted that Polese, who is 23 years his senior, was Peterson’s supervisor. Polese’s attorney did not respond to requests for a comment. …Learn More

‘Finglish’ Is the Problem

All the headlines about “financially illiterate” Americans miss something important. The language financial professionals use can be incomprehensible.

In this humorous video, David Saylor, whose job is basically “word consultant” for Invesco Van Kampen Consulting, walked around downtown Chicago and asked people to define industry terms such as “dollar-cost averaging” and “beta.”

One person got one answer right. (After watching the video, readers may need to consult Saylor’s glossary, below.) Even a seemingly simple concept – “transparent fees” – was misinterpreted. It means that fees are fully disclosed but was interpreted to mean “invisible.”

No wonder people are confused by the “Finglish” – financial English – thrown around by their mutual-fund companies, 401(k) managers, and other investment professionals, Saylor said.

His work also explores the subtle distinctions people make when the industry attempts to use familiar terms, such as “guarantee” or “nest egg.” …

NWNE Heard On The Street from Center for Retirement Research on Vimeo.

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Expert Offers Advice About Advisors

J. Michael Collins, faculty director of the Center for Financial Security at the University of Wisconsin – Madison

People often have a tough time deciding whether they would benefit from hiring a financial advisor.

J. Michael Collins, who specializes in consumer decisionmaking in the financial marketplace at the University of Wisconsin – Madison, attempted to answer some questions on the topic in an online interview by a Chicago money manager.

Most agree that fee-based advisors are preferable to those who earn commissions by selling products to their clients – being a broker or a salesman conflicts with giving advice. This troublesome conflict is eliminated by paying an advisor a fee for his or her work.

But even the prospect of hiring a fee-based advisor typically raises more questions than answers. What do advisors do? Is the service worth the fee an advisor charges? What exactly am I paying for?

Read here what Collins had to say on the topic.Learn More

Retirees: Focus on the Monthly Check

To help retirees choose the best way to spend down the 401(k) savings they have built up over a lifetime, Nobel Prize laureate William Sharpe urged them to focus on a single outcome: the size of their monthly check.


This video was created by Professor William Sharpe of Stanford University.

Financial advisors should say to their clients, “Don’t worry about the strategy or model. Look at the outcomes that matter: what you can spend year by year in retirement,” he said.

Speaking at a conference this week at Boston University’s School of Management, which brought financial practitioners together with top minds in academic finance and Washington think tanks, Sharpe said advisors should present clients with various payout schedules and then explain the probability of success for each one they’re considering. Learn More