Investor Abuse Not as Widespread as Author Intimates

As an attorney and a financial advisor, I have concerns regarding the article “Retirement Adrift: Financial Elder Abuse” (March 2013). Although it may be in vogue to deride the financial industry, and not entirely unjustifiably so, I am concerned that articles and promotions such as this may lead to searching for fire where there is no smoke. In my opinion, the net here has been cast intentionally wide to ferret out a broker/dealer snipe. Rather than focusing on financial elder abuse as advertised, and identifying coercive practices of unscrupulous brokers, the methods extolled in the article suggest something more of throwing everything at the wall to see what sticks.

Most of the red flag investments listed in the “Identifying a Possible Case” sidebar are likely to be found in virtually any properly diversified portfolio. High-yield funds, REITs, foreign, developing, and emerging market funds, and variable annuities are common investments found in many investors’ portfolios, and in and of themselves should be no cause for alarm. Additionally, extensive regulations are in place to help protect against unsuitable investments and create qualification hurdles to prevent unsophisticated investors from participating in vehicles such as option and on-margin trading. Wary investors also should not fear seminars. Seminars designed to sell high-risk products to naïve patsies are few and far between. Seminars are instead used for client prospecting, client appreciation and education, and to advertise strong and successful platforms.

The article and video on wisbar.org imply that it is commonplace for exploitive brokers to push high-risk investments to earn larger commissions. While certain products are susceptible to nefarious sales, generally an advisor generates the same commissions for selling a high-risk product, like a speculative stock, as he does for brokering a safe, blue-chip stock. Additionally, fears regarding these practices are largely allayed as the industry continues to evolve into a wrap-fee model that pays brokers a percentage of the client’s managed assets, and therefore aligns the broker’s interest with that of the client.

Perhaps the article’s most perilous intimation is the statement that “Every investor who has lost money should have a portfolio review to determine if there are claims” (sidebar). Investing is inherently a risky endeavor. Prognostications are precisely that; best guesses at what the future holds. The market perpetually ebbs and flows and economic crashes like 2008 inevitably occur. Experienced investors who have never lost money are as rare as unicorns. Between Oct. 9, 2007 and March 5, 2009, the Dow fell more than 50 percent. An investor with an ace broker making all the right moves would have been ecstatic to only lose 10 percent.

Readers should be wary of the predilection to initiate a cri de coeur-laced call to arms for a broker witch hunt.

Steven J.E. Manders, Waukesha 

Response: Investment fraud is pervasive, and some people would like you to think otherwise. That said, this article was not an indictment of an industry, simply information that investors who lose money may have remedies. Indeed, many people in the industry are happy to hear that lawyers are representing investors who have been wronged by brokerage practices.

Jeffrey M. Salas, Salas Wang LLC, Chicago 

The Tiger Has No Teeth

The Wisconsin statutes make it a crime for a person to practice law without a law license. However, little is being done to protect the public from the unauthorized practice of law (UPL)

I learned of a situation in Kenosha that I believe constituted UPL. However, no one is interested in stopping it. I learned that the Wisconsin Supreme Court has no enforcement mechanism in place. I wrote to the State Bar of Wisconsin but did not receive a response. I then wrote to the Office of Lawyer Regulation and found that it has no regulatory authority over UPL. Finally, I brought a complaint to the DA’s office and was told “like everything else, violent street crimes take priority over this matter” so I would not hold my breath.

So while the legitimate practice of law is highly regulated in Wisconsin, UPL takes us back to the days of the “wild west.” That is, anything goes, and the chances of regulatory enforcement or criminal prosecution are remote. There simply is no interest in Wisconsin to stop UPL. The tiger has no teeth.

Terry W. Rose, Rose & Rose, Kenosha 

Response: As noted, the State Bar lacks jurisdiction to enforce against UPL. In 2007, the State Bar petitioned the supreme court for a rule defining the practice of law and for the creation of an independent entity that would have civil enforcement authority to enjoin and sue those who engage in UPL. In 2010, the court did define the practice of law (SCR 23) but did not create an enforcement entity. Today, Wis. Stat. section 757.30 is the primary enforcement tool against UPL. The UPL Committee will soon publish a litigation resource manual to encourage the private bar to use existing civil common law and statutory causes of action (such as chapter 100) against those who engage in UPL and harm consumers.

Andrew J. Chevrez, chair, UPL Policy Committee