Elaine and Merlin Toffel, two retirees in their 70s, wanted help with their investments. They visited their local U.S. Bank branch and the teller suggested they meet with the bank’s investment brokers. The bank ended up selling these retirees more than $650,000 in annuities to generate lifetime income payments.
Now Ms. Toffel says they didn’t realize the variable annuities came with a big annual charge: 4% of the invested amount or more than $26,000 per year. Moreover, they didn’t understand there would be a 7% surrender charge (>$45,000) if they need to get their money back right away.
Mr. and Ms. Toffel fell prey to a painfully regular pitfall. They assumed the broker was working and advising them in their best interest. That is simply not true. Brokers are not a fiduciary. They are allowed to put their own interests or their employer’s interests ahead of yours!
“Brokerage customers are, in a certain sense, deceived,” said Arthur Laby, a professor at the Rutgers School of Law and former cunsel at the SEC. “If brokers continue to call themselves advisers and advertise advisory services, customers believe they are receiving objective advice that is in their best interest. In many cases, however, they are not.”
“While many brokers do right by their clients, others push bad products at high prices,” said Knut A. Rostad, the regulatory and compliance officer at Rembert Pendleton Jackson,
Please arm yourself with information by reading this New York Times article.