Speech by SEC Chairman:
Address to the AARP National Convention, "Life at Fifty-Plus"
Chairman Christopher Cox
U.S. Securities and Exchange Commission
Boston Convention Center
September 6, 2007
Thank you, Bob [Romasco, Member of AARP Board of Directors], for your kind introduction. It's also an honor and a pleasure to follow Chairman Deborah Majoras of the Federal Trade Commission. She's an outstanding leader who's really looking out for consumers.
I've been looking forward to attending an AARP convention ever since, a couple of years ago, I was searching for a James Taylor concert, and found one — on my birthday, no less — in Las Vegas. At the AARP convention! We're all moving along, I guess. When I took my teenage daughter to see the Beach Boys at Wolf Trap last year, she said on the way out, "Dad… shouldn't they really be called the Beach Grandpas?" But the truth is, what once was considered "old" is now forever young. Steve Jobs is looking forward to getting the Beatles on iTunes, because he expects many of today's iPod owners will want to buy Beatles music online. Yet think about it: it's been 40 years since the Beatles were in their prime. If you grew up in the 60s listening to the Beatles, then to draw the analogy, back in those days you'd have wanted to buy music from the 1920s. Not likely. (At least I don't recall record companies looking to re-release Rudy Vallee on 8-track tapes.) During the 60s and 70s, guys weren't imitating 1920's hairstyles, either. But today's teenage boys and young men are happy to emulate the Beatles' haircuts, or lack of them. So times really have changed, with not only the styles and pop culture of decades ago being embraced by today's young people right alongside newer fashions, but also the whole concept of what it means to be an "old" person becoming much more elastic.
As if to make that point, at this convention we've got headliners like Rod Stewart and Earth, Wind & Fire. Indeed, it's entirely possible that many people came to this convention more for the music than for retirement investing tips. But I'm certain that in this audience we have the crème de la crème of the AARP crowd who above all are interested in how to avoid securities scammers while making the most of their retirement nest eggs.
AARP accepts members who are only 50 years old, and many of its programs refer to what used to be called the "retirement years" as "life in the second half." And increasingly, that's literally true. Because given the trends in modern medicine, health, and nutrition, many of today's 50 year olds really will have another half of their life yet to live. The fact is, Americans are living longer, and there will be many more of us living longer than ever before. The 76 million baby boomers who are now reaching 65, the traditional age of retirement, represent the largest demographic wave in our nation's history.
All of this has enormous consequences for those of us who fight securities fraud. Already, the 37 million Americans who are 65 and older account for 12% of the total population. In other words, it's as if the entire population of the state of California — every man, woman and child — were senior citizens. And that fraction of the total population is rapidly growing, because longevity is now the norm in our country. In the 21st century, Americans will live significantly longer than their parents. And here's the key from the SEC's standpoint: they'll live longer than most of them planned for their retirement. That means they'll be likely to take greater risks with their investments in order to achieve higher returns, instead of switching into low-yield, safe investments like the retirees of yesteryear.
These facts, plus all of the money that seniors will have — fully three fourths of all investable assets by 2010, according to McKinsey & Company — will make older Americans the number one targets for scam artists and securities swindlers. Just like the old bank robber Willie Sutton used to say, the 21st century's securities cheats will "go where the money is."
The SEC is concerned not just because we know seniors will be bigger targets than ever before, and because there will be a greater number of fraud cases against older Americans than ever before, but also because investment fraud against seniors is qualitatively different than fraud against any other group. When seniors get hit, the blow lands much harder. Because when seniors lose their life's savings, they lose everything. For good. They simply don't have the time left in their lives to start over, and rebuild a nest egg.
Taking care of my own parents' finances, I've grappled with this important issue on a very personal level. Before my mother died a few years ago, she was pestered by a seemingly endless barrage of annuity schemes and mortgage offers. Despite the fact that she was suffering from throat cancer and could barely speak, she received repeated unsolicited sales pitches, over the phone and even in person. Even though my father was suffering from Alzheimer's disease, the brokers hit on him as well. The products these brokers were pushing weren't just unsuitable, but affirmatively harmful to anyone in my parents' circumstances.
Both during my time in Congress and since I've become Chairman of the SEC, I've heard hundreds of similar stories from constituents and colleagues. It's heartbreaking to see a loved one ripped off by underhanded tactics that may comply with the letter, but not the spirit, of the law. That's why, at the Securities and Exchange Commission, we're always doing our best to protect all investors as if they're our own parent or relative.
Since I became Chairman, we've been attacking the problem from a number of angles — from investor education, to targeted examinations, to aggressive enforcement efforts. Working with AARP and others, the SEC held our first-ever Seniors Summit in July 2006 to coordinate our nation's efforts to protect older Americans from investment fraud and abusive sales practices. And at the 2007 Seniors Summit, which will be held next week on September 10, we'll gather even more of the nation's resources to protect seniors.
One important part of the event will be a "lunch and learn" program focused on how to combat investment fraud by understanding the persuasion tactics most often used by fraudsters who prey on seniors. We'll kick off this year's event with a presentation of the findings of the SEC's examination of "free lunch" sales seminars aimed at seniors. Over the last year, the SEC and state securities regulators have conducted a coordinated series of examinations of financial firms that sponsor "free lunch" sales seminars, often at local restaurants and hotels. Our examinations have found that, despite being advertised as "educational" or touting the claim that "nothing will be sold," the purpose of these seminars is usually to convince anyone who shows up to open new accounts with the sponsoring firm — and ultimately, to sell them financial products.
Over the past two years alone, the SEC's Division of Enforcement has brought at least 40 enforcement actions involving fraud on seniors. Many of these actions were coordinated with state authorities. One of many examples of these kinds of cases to protect seniors was our crackdown on a $145 million Ponzi scheme that lured elderly victims in southern California to workshops with the promise of free food. After providing the seniors who attended with a nice meal, they then proved the truth of the old adage that "there's no such thing as a free lunch" by bilking these older investors out of their retirement money in exchange for what they said were "safe", "guaranteed" notes.
In another case this July, we filed an emergency action against a firm called AmeriFirst and their principals. Our complaint alleged that AmeriFirst sales agents lured elderly investors and others with advertisements for relatively high-yielding FDIC-insured certificates of deposit. Using the tried and true bait-and-switch, they then convinced the investors to purchase instead so-called Secured Debt Obligations, or SDOs. Fortunately, the SEC was able to get preliminary injunctions and asset freezes. But as in too many cases like this, much of the money was spent before we got there.
Each of these cases is different, of course, but they all have in common that the victims are older Americans whose few remaining years don't allow them enough time to ever recover from securities fraud. And what we are increasingly finding through our examination sweeps of investment advisers and brokers who market their wares to seniors is that the fraud artists and swindlers who prey on older investors have the same M.O.: They call themselves "senior experts" in order to gain the victim's trust. They use fancy designations, such as Certified Senior Investment Planner or Registered Senior Investment Adviser, to give the impression that they have older investors' best interests at heart. But all too often, these are just clever marketing ploys to bait the hook so they can reel in another sucker. The titles and the initials sound like genuine designations that require months or years of study, and rigorous examinations. But in reality, they may be issued by some fly-by-night operator on the Internet, or they might be the pure invention of the broker or investment adviser.
I've long believed there's a special place in Hell for those who would steal the life savings of America's elderly. That's why the SEC is working so hard to forge a national solution to this urgent problem. At our Senior Summit next week, we'll tackle this problem with our fellow regulators from the states, to see if we can craft a legislative or a regulatory solution to the proliferation of so-called "senior specialist" designations. But in the meantime, you need to be on guard for supposed senior advisers who are seeking to gain your confidence, but who are really just confidence men.
Whenever you select a broker or financial advisor, it's critical that you do research first. You can use our website for this, as well as your state securities regulator's site. Another especially good website is maintained by the Financial Regulatory Authority — formerly the NASD. And not surprisingly, there are also useful links on the AARP website.
Here's what you want to know: Is the person you're dealing with a registered investment adviser? Or do they have other purported credentials — and if so, what do those credentials really mean? This is an important question, because many so-called "certified senior financial advisers" who hold themselves out as experts on senior investing are offering financial advice they're not qualified to give. The number of "certified senior advisers" has increased a remarkable 78% in the last five years alone. And until we work out the beginnings of a regulatory solution at next week's Senior Summit, you need to know that neither the SEC nor any other government-sanctioned authority regulates the requirements for people to hold themselves out as "certified" senior financial advisors or similar sounding titles.
FINRA — the Financial Regulatory Authority — lists on their website more than 70 different professional designations commonly used in the financial services industry. Just like the SEC, FINRA does not approve or endorse any of these. So it's entirely possible that, even after doing some research, it won't be clear to you whether a professional designation represents legitimate expertise, or just a marketing tool. And that's why it's so important that you ask a lot of questions. Is your adviser registered with the SEC? Is the investment product that's being offered to you registered with the SEC? How is your adviser being compensated? By commission? By the hour? By a percentage of the investment return? And how much does he or she get? Does your adviser have any interest in the investment?
Ultimately, here as elsewhere in life, you're going to have to let experience be your guide. And that's one thing older Americans seem to have more of than anyone else. As George Burns once said, "You know you're getting old when you stop to tie your shoes, and wonder what else you can do while you're down there." Older Americans may have a few more aches and pains, but they also have something that any man or woman should want: the wisdom that comes with years of experience.
The Roman playwright Seneca wisely said, "No man was ever wise by chance." Wisdom derives from learning, which combines information and experience. At the SEC, we help provide you with the very best information about the investments and investment professionals you have to choose from.
So thank you for being here this afternoon and for taking in a little information to go along with your well cultivated wisdom and experience. Thanks especially to the Bostonians among you, who have been such gracious hosts to all of us. I hope that all of you who have come to Boston especially for this AARP convention will take advantage not only of the outstanding programs being offered here in the convention center, but also of the rich history that's all around us in this colonial city.
I have a special connection with Boston, having spent many years here as a student, and then as a teacher, at Harvard. And so too does the SEC have its own special connection. Our first Chairman, appointed by President Franklin Roosevelt in 1934, was Joseph P Kennedy, President Kennedy's father and of course a prominent Bostonian. Today, as it happens, is his birthday. He would be 119 if he were still alive.
Chairman Kennedy marveled that in his day, one in every 10 Americans owned stocks. Today over half of all United States households directly own securities, and even more through their pension funds and retirement plans. Probably every person in this room today is an investor. Investing wisely is an important part of responsibly providing for your own retirement, for your loved ones, and if you can, for others in society who are less fortunate. The SEC is working every day, here in Boston and around the country, to help you do that. We care deeply about your future — and we're proud to be your partners.