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With even the best certificates of deposit still yielding less than 2 percent, the days of "living off the interest" for retirees are long gone. But the problem for retirees isn't confined to the new normal of paltrier yields. Low interest rates are also creating an environment that may make senior investors more susceptible to unsuitable investments, according to a new report from Finra and the Securities and Exchange Commission.
In the "National Senior Investor Initiative" report issued in April, the SEC and Finra examined how dozens of brokerages engaged with senior investors in 2013. Among other findings, the report concluded that a significant percentage of brokerages examined recommended potentially unsuitable "non-traditional" investments, such as structured products and Real Estate Investment Trusts (REITs), instead of more traditional investment options like stocks, mutual funds, and bonds.
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Even in the case of traditional investments, senior investors were sometimes steered toward unsuitable investments, like purchasing a less appropriate share class of a mutual fund, and investments that lacked liquidity.
Throughout the report, FINRA and the SEC focused on "suitability," a standard of obligation that currently applies to broker-dealers that is considered less potent than the fiduciary standard to which Registered Investment Advisers must adhere. But those standards may soon be changing for some types of accounts that broker-dealers currently manage, like Rollover IRAs. The Department of Labor has issued a proposal that would require all investment advice that relates to retirement assets meet the stronger fiduciary standard.
—Chris Horymski
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