This article continues our prior posts concerning a recent report by Bloomberg that noted the rise in rollovers from 401(k) plans into IRA accounts. The article pointed to concerns by regulatory agencies and investors concerning the suitability of the investment choices being recommended by brokers soliciting rollovers.
In another example, a mechanical engineer for Hewlett-Packard in Puerto Rico, rolled over $150,000 from a 401(k) to an IRA with UBS. His broker Luis Roberto Fernandez Diaz, recommended Puerto Rico municipal bond funds that contained a 3 percent upfront sales fee and 1 percent annual expenses. Fernandez’s brokercheck lists 17 customer disputes from 2009 through 2014. As we have reported on multiple occasions, our firm represents investors in claims against UBS concerning the firm’s practices in overconcentrating many of their client’s assets in these speculative highly leveraged bond funds. Those articles can be found here, here, and here.
In the case of an IRA, it makes little sense for a financial adviser to recommend investing in municipal bonds because the bonds main advantage is tax avoidance which already is a benefit of investing in an IRA. The investor interviewed by Bloomberg, says that the bonds plunged in value because of the deteriorating finances of Puerto Rico and are only worth $90,000.
In another example, in 2010, a structural engineer for Aecom Technology Corp., a Los Angeles-based engineering design company, attended a hotel seminar organized by Raymond J. Lucia Sr., a radio personality who ran an investment firm before the SEC brought action against him concerning his sales practices. The employee was about to retire along with his wife, a former schoolteacher. According to Bloomberg, the couple were recommended by Lucia to invest $300,000 of their retirement savings into non-traded real estate investment trusts. Non-traded REITs aren’t traded on public exchanges, are illiquid, carry high fees of around 7-10% to invest in, and cannot be sold. The couple’s REIT allegedly lost $100,000 in value.
According to Lucia’s brokercheck there have been 16 complaints filed against him, many include allegations of unsuitable investments in non-traded REITs. The couple filed an arbitration claim against First Allied Securities Inc., the firm that Lucia was associated with. Our firm has also recently filed a complaint against First Allied alleging, among other things, the unsuitable sale of REITs.
Fortunately, federal regulators are now looking into rollover abuse. According to the U.S Government Accountability Office a conflict of interest is fueling IRA growth. In January, FINRA warned firms that it would heighten its scrutiny of IRA rollovers. However, brokerage firms continue to try to entice investors to rollover their accounts into IRAs and go so far as to offer incentives to rollover 401(k)s to IRAs. Bank of America’s Merrill Lynch and E*Trade offer up to $600 to anyone who rolls over a 401(k) into an IRA.
The attorneys at Gana Weinstein LLP are experienced in representing investors concerning unsuitable Puerto Rico UBS bond funds, REITs, and other investments to recover their losses. Our consultations are free of charge and the firm is only compensated if you recover.