NEW YORK (MainStreet) — Employees, especially highly-compensated management, of major corporations such as IBM, Boeing, GE, ExxonMobil and Lockheed Martin, are much sought-after by financial advisors seeking "rollover business." Flush with multi-million dollar 401(k) assets, these pre-retirees are often on the invitation lists of the well-worn investment seminar circuit. Eager financial advisors are more than happy to provide tasty filets and ample open bars to lure these 401(k) whales to their functions.
Among the slick handouts, animated PowerPoint and tasty pinot noir can be a pitch far better than the steak. In such a competitive business, the pressure to stand out is immense. The evening can't be simply about asset allocation, prudent portfolio construction and "open investment architecture." Advisors must somehow set themselves apart– and "principal protection" is becoming the go-to promise.
Recently, a FINRA arbitration panel awarded 19 retired Exxon Mobil employees nearly $4 million in damages, interest and related costs for the seminar pitch heaved by a Texas advisory firm. The financial consultants promised protection from market losses – and according to the FINRA panel, failed to deliver. The retirees initially sought $12 million in total damages.
The investors attended a seminar for Exxon Mobil employees nearing retirement that presented a "total return" investment strategy, said to achieve S&P500 gains while minimizing market losses. The group invested a total of nearly $40 million with the advisors, losing $1.25 million, according to a report in the Wall Street Journal. The clients believed the strategy would automatically sell investments and move assets to cash based on "objective technical indicators" when markets fell.
"Claimants alleged that [the firm] mismanaged their accounts, failed to follow the trading model, failed to implement the promised stop-loss measures, failed to conduct regular reviews, and failed to supervise the accounts," the FINRA dispute resolution document states. The firm denied the claim but has no right to appeal the decision.
Such investment seminars for Fortune 500 company employees nearing retirement are common. The pitches aren't always prone to over-reach, but any claims made during the presentation should be carefully noted by prospective clients, and investment promises obtained in writing.
--Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick