Wednesday, March 02, 2011

Elder Abuse with Principal-Protected Notes?

You would never know it from the online version of the March/April issue of AARP's magazine, but the print edition contains a scathing article on structured products – principal-protected notes. Pick up a copy and read "The Time Bomb in Your Nest Egg."

Brokers at major banks and Wall Street firms sold over $51 billion of the derivatives last year, typically to elderly investors seeking more income. One commentator refers to the structured products as the consumer version of the toxic derivatives Wall Street used to sell to institutions.

Sold under such fancy names as reverse-convertible or return-optimization securities, the products are so profitable for banks that in-bank brokers can earn commissions of from 3 percent to 10 percent, according to the AARP article. Seniors tend to be easy marks because "elderly people are often more comfortable with brokers who work in their banks."

The in-bank brokers I've run into over the years have seemed pleasant enough. I hate to see their brethren getting more bad press. Come to think of it, though, our local bank branch (TD Bank) recently cleared away the marketing materials for in-bank investment sales. Now the brochures promote TD Ameritrade.

Are some banks deciding that in-bank sales of investment products are not worth risking charges of elder abuse?

Today's poster child for elder abuse was Mickey Rooney. This article on Mickey's Senate appearance includes a troubling statistic:
About 7.3 million older Americans — or one of every five people over 65 — have been financially swindled, according to an Investor Protection Trust survey ….
Such statistics seem to vary widely, along with definitions of a swindle.

1 comment:

queenjane said...

The AARP piece is available at and further commentary by the attorney quoted in the piece is at: