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Hearing of the Senate Special Committee on Aging - Advising Seniors About Their Money: Who Is Qualified and Who Is Not?


Location: Washington, DC


SEN. KOHL: Good afternoon and welcome you all this afternoon to today's hearing. We particularly want to thank our witnesses for taking time out of their busy schedules to be here with us. Today we intend to examine the nationally growing problems of poorly trained senior investment specialists and take the first step towards much needed reform.

Many seniors are discovering that their life savings will not see them through their golden years and are turning to investments to increase their retirement income. With the intent of investing wisely and knowledgably, older Americans often turn to financial advisors. An investigation conducted by this committee has found that many seniors are losing their retirement income and savings by placing their trust in so-called advisors who in many cases may not deserve that moniker.

More and more individuals are representing themselves as certified senior investment specialists when they often have limited or no education, no experience in extremely complicated financial matters. It is estimated that there are thousands of individuals holding themselves out as senior specialists. Although some may have legitimate credentials, often times they do not.

We know that an attorney must go to school for three years and pass a state bar exam. A CPA must have a college degree, an additional year of study, and must also pass a national exam. Neither can offer their professional services without these credentials. Seniors should be able to trust the people who invest their money. They should not be worried that the title after their advisor's name is often times scarcely more than a marketing ploy and that it was not earned through sufficiently rigorous financial education or financial training.

You can see from the poster that we have here today, there are many different designations, and they all sound very official. These are just a handful of those being marketing today. You would be very surprised to know that in order to obtain some of them all it takes is a weekend and as many cracks at an open book, multiple choice exam that is needed. We can't tell the difference between the more legitimate titles and those with less rigorous standards. We can't tell. Can you? And more importantly, can our seniors?

During this hearing we'll also take a look at how some of these so-called senior advisors and other inadequately trained sales agents are placing seniors' money in investments unsuitable for their needs. We want to make it clear at the outset that we're not taking any position on the benefits or relative value of any financial products. However, some investment products are extremely complex and require a trained expert to explain their costs and their benefits. Unfortunately, many seniors are not receiving these clear and unbiased explanations when they receive financial advice.

To be fair and to gain as wide a perspective as possible, we've invited a number of financial insurance related organizations to provide their written views on these issues, and we've made those statements available. While it is true that many financial advisors hold reputable designations, far too many do not. More importantly, having too many designations and certifications out there can only serve to confuse our seniors. Older Americans need to know whom they can trust. To address this problem, we intend to develop legislation that will provide a uniform standard for the accreditation of senior financial advisors.

In the months to come we'll also be working with the financial and investment industries to reform the use of designations. We are pleased that increasing concern surrounding this issue has already caused a number of companies to ban or limit the use of, quote, "senior specialist designations by their employees."

So once again, we thank all of our witnesses for being willing to take part in this committee's work. And with that, I'd like to call upon the members here today to make whatever opening comments they would like, and we'd start with the first one who arrived, David Vitter.


SEN. KOHL: Thank you, Senator Coleman. At this time we'll turn to our first panel, and we're very pleased to have Chris Cox, who's chairman of the Securities and Exchange Commission as our individual here. Chairman Cox has served as the SEC chairman since August of 2005, and before that he was a distinguished member of the House of Representatives for many years.

And so we welcome you back to the Hill, Chairman Cox. We look forward to your testimony. And just before you speak we will ask the two distinguished senators who just arrived to make some comments if they wish. Senator Salazar and Senator Casey.


SEN. KOHL: Thank you very much, Chairman Cox, and in your testimony you state that you're looking into whether the SEC state regulators and/or Congress should be doing more to address the growing problems associated with, quote, "senior professional designations", the multiplicity of them, and in many cases the inadequacy of what it is that they know and what they're trying to do. Can you tell us a little bit more about some of the potential solutions that you may well be considering?

MR. COX: Yes, thank you, Mr. Chairman. Just as you and this committee are concerned about this issue, so are state legislatures, the securities regulators in the states, and the Securities and Exchange Commission. What we've got is a cacophony. There's a lot of alphabet soup and it's very confusing. You don't have to be long in the tooth and perhaps have a difficult time reading the fine print or perhaps be a little forgetful to run into problems trying to understand what you're dealing with here. It is just plain confusing to anybody. And so it cries out for something a little bit more consumer friendly, and this is true for consumers of any age.

Part of the problem is that there are so many different organizations, even legitimate organizations, issuing legitimate designations. And so one question that I think we should all ask ourselves is, is this a case where there is need for uniformity? Is this a case where a national approach and a federal solution might contribute something? Is this a case, if not that, where some model form of regulation would make sense? And I think you will hear shortly from the North American Securities Administrators Association, President Joe Borg, that that is in the works.

At our senior summit next week we're going to focus our attention on this issue. We'll bring the SEC, the state regulators and others together in a meeting to try and hammer out some more solutions. We've talked about it before in the past. And I think working with you and the Congress, we should be able to make short work of this.

SEN. KOHL: Thank you very much. Senator Smith.


SEN. KOHL: Thank you very much, Senator Casey, and Mr. Cox, we really want to thank you for coming here today and talking to us, talking about all the things you know, your knowledge, your expertise, the plans that you have to work together with us and at the SEC to do something significant about this issue. And we're looking forward to working with you to get something done, and again, we thank you for being here today.

MR. COX: Thank you very much, Mr. Chairman. We at the SEC appreciate your leadership on this issue and look forward to working with you as well.

SEN. KOHL: Thank you very much. Moving on to the second panel, our first witness on the second panel will be Mary Swanson who is the attorney general of the state of Minnesota. Attorney General Swanson has served in that position since January and previously served as Minnesota Solicitor General and Deputy Attorney General. Strong advocate she is for the public areas, including financial fraud against the elderly and also consumer protection.

And then we'll hear from William Galvin, who's secretary of the Commonwealth of Massachusetts. Secretary Galvin serves as the state's chief securities regulator. He has earned a national reputation for aggressively protecting investors.

Next witness will be Joseph Borg, who's president of the North American Securities Administrators Association, known as NASAA. He's also director of the Alabama Securities Commission. NASAA is the oldest international organization devoted to investor protection. His fundamental mission is protecting our consumers who purchase securities or investment advice.

And then we'll have Nicolas Nicolette, who's a certified financial planner and president of the Financial Planning Association, FPA. The FPA is an advocacy organization whose stated aim is to be a community that fosters the value of financial planning and advances the financial planning profession. Mr. Nicolette has been an SEC registered investment advisor since 1992, and he has substantial experience in the industry that we are examining today.

Our next witness will be introduced by Senator Smith.


MR. BORG: Thank you, Mr. Chairman. Let me add to Attorney General Swanson and Secretary Galvin. A couple of things come to mind, certainly what the FPA has talked about, the overall fiduciary standard. Violation of a fiduciary standard allows civil and criminal penalties, in most states, of some type or another. However, if you limit it strictly to the agent speaking and do not go up the chain, you are not solving the problem. So -- an overall fiduciary standard would be one. Certainly enhanced civil and criminal penalties.

Now, although that may be a end result with the civil penalties, let's remember what we're trying to accomplish here. We're all at this table putting out forest fires, and they're raging forest fires, trying to stop these things. We've got to figure out who's holding the match and blow out the match before that forest fire starts. From that point of view, we have to add certain qualities. Up-the-chain liability, as -- as Secretary Galvin has mentioned, is important. The companies need to be responsible for the actions of their agents.

Further, I would think education's important, but a slightly different twist on the education. General education that is disseminated across the board has limited effect. One of the programs we're using in my state is a special program that seniors watch. It's cable TV that's called "The Time of Your Life." It starts with a clock that goes 60, 70, 80. It's a very, very popular show that we're getting a lot of traction on. That type of education where you've got a TV show or a cable show, something they can watch, as opposed to read, is very, very important. Certainly work with the AARP and other groups of that nature is very helpful as well. And I'd add one more.

We've got to stop the problem 30 years from now by starting in our school system now. We've been advocating investor education, financial information, in the school system now, not just for seniors, but let's face it; our children become seniors down the road. We've got to start now, and one of the ways to do that is mandate financial education, and let's get away from (why ?) teenagers going, "How can I be out of money? I still have checks in my checkbook." And therefore, that type of education starting early, not only on the senior level, but from --

Thank you very much.

SEN. KOHL: Well, I'd like to just throw out another question here, and that you wish to -- you may decide you want to comment or not. Our next panel is going to consist of the president and CEO of Allianz Life Insurance of North America. Are you all familiar with Allianz?

MR. : Yes.

SEN. KOHL: You are?

MS. : Mm-hmm. (In agreement.)

SEN. KOHL: They're the ones who market these products, have agents that market these products. You a great admirer of Allianz? I mean, do you think they're doing a great job? Do you think they're doing a lousy job? If you are here sitting in this chair today, I mean -- you've talked about getting up the food chain, you know? Get -- get to those people; hold them accountable.

I'll start with you, Ms. Praeger. Allianz. One of your favorite companies in the world? Something less? ABCD? What?

MS. PRAEGER: (Chuckles.) I think the -- the market for annuity products is definitely growing, there's no question, and Allianz leads the -- in the development of those products. But I think as seniors -- as the baby boom generation ages, and we all want to -- I kind of view that period from 65 to 85 as another career. I want to become really good at living my retirement years, and people are concerned about having the sufficient income. So I think the products -- and we do certainly scrutinize the products before they go into our market.

The problem really is the aggressive way that -- that agents sell the products and, I think, some of the commissions that encourage perhaps the inappropriate sales.

SEN. KOHL: Okay.

MS. PRAEGER: So I really -- and I think the titles, these designations which imply trust and try to garner trust are really one of the problems. So I think the focus needs to be on where the agent and the consumer interact.

SEN. KOHL: Good.

Mr. Nicolette.

MR. NICOLETTE: Well, I'd like to address that one, clearly, the state commissioners are in a great position, and the insurance regulators, to oversee insurance companies, and that needs to be done right up to the -- you know, at the very top, and have them be held accountable. But there's a huge impact to all this I would like to address, because it doesn't impact just the senior, which is a horrible thing. It impacts their family; it impacts their community. It does impact our society, and I think that's why we're all here.

And it's not just about the product sale, because that's one of the things, obviously, is the issue here on a (big aspect ?). It's not just investments; it's not just insurance product. It's really, regardless of those two things, it's about advice. All these individuals are utilizing designations and sales seminars and luncheons to allow people to believe that they're going to receive objective advice, and I think that's one area that we can all work together is to be able to help oversee and to bring together universal standards of care that all people who give advice will be held accountable to -- not the sale of a product, but how you provide advice. The SEC has been doing a very good job in terms of how they look at that.

As a financial planner, if I provide advice, I have a different set of standards than if I just sell a product. And I think what we're seeing are people using a designation to feel -- make people feel they're receiving advice, that they can trust the person that's giving them advice, and then they're selling them an insurance product that is not covered by the Advisers Act that the SEC oversees. These commissioners and all of us together, I think, can work to make sure there's a universal standard that they would be held accountable, that anyone providing advice would be held accountable to.

SEN. KOHL: All right.

Mr. Borg, do you know anything about Allianz?

MR. BORG: Yes, sir.

SEN. KOHL: Say a couple words.

MR. BORG: I think the question was am I a fan of Allianz, or do I know about their products. Now, their biggest single product, I think, to date is the Allianz MasterDex 10 product. It has, for example, features that are never explained to the customer and they wouldn't understand it anyway. Half the time the agents who sell it don't understand it. Give you an example.

If you look at the hypothetical on the MasterDex 10, it has, for example, if you put in $100,000, at the end of 10 years it's worth $241,000, annuitized. Now, to the average investor, that means at the end of 10 years, I get my $241,000. Oh, no. Doesn't work that way. If you cash out any time within the 10 years, you lose all the bonuses, you lose all the benefits, and you have to pay something like a 12.5 percent surrender charge. If you -- if you cash it out at the end of 10 years, of that $100,000, you get approximately $101,800 back. So for 10 years, you made $1,800, because you cashed it out. What you have to do then is hold it for another 10 years and take out a payout over 10 years as an annuity, 10 percent each year. Now, there are some other factors; you can take out some up front, some out back.

The other thing is a lot of folks don't annuitize. Well, what do they want to do with their money? They're going to leave it to their grandkids or grandchildren. What happens if they cash out of this product at death? Guess what? You have to annuitize then, too. Otherwise, you don't get the market bonus. You have to fees, because it basically has an interminable surrender charge if you cash it out at any time.

SEN. KOHL: Okay --

MR. BORG: So there are -- I'd be happy to supply our information on this product to the committee, if you would so choose.


SEN. KOHL: Thank you so much.

Mr. Bhojwani, I want to make it clear that your company is by no means the only firm that is alleged to have problems with the type of sales and marketing practices outlined by the Minnesota attorney general today and by other state regulatory officials and also in recent critical media accounts. Your representatives have outlined for the committee staff an impressive set of written guidelines and oversight procedures, (as ?) you have, governing the sale by your agents of certain complex financial products such as annuities, and your testimony was very impressive in that respect. And yet the question is if these rules are being followed or enforced so well, then why are state regulatory officials relating such a considerable volume of alleged abuses to us about your company?

MR. BHOJWANI: Chairman Kohl, thank you for the question, and thank you for the acknowledgement of our efforts --



SEN. KOHL: That's very good. Thank you.

Mr. Pittock, we appreciate your invitation to the committee staff to visit your facilities, undergo your certified senior advisor -- the CSA training program which, according to your testimony and disclaimer seeks only to enhance knowledge of senior issues of various types. However, our concern today relates more to the actions of agents and others who possess your CSA designation, rather than anything you or your immediate staff may be doing. How do you oversee individuals once they have earned your CSA designation, how do you oversee them?

MR. PITTOCK: Thank you, Senator Kohl. There are several activities that take place. Each year our CSAs have to complete a disclosure statement that says they've had no regulatory or legal activities against them during the past year. We get reports working with regulators and we also go to regulator Web sites to see if a CSA appears on that Web site for any action, even before the one-year reporting comes up.

And then we have a self-reporting that the CSA is to tell us immediately, according to our CSA code of professional responsibility, which is 26 pages long, that if they have an issue legally or with a regulator, they're to report that to us immediately. Now, when I say "us," that goes to our independent CSA board of standards, and that board of standards then will investigate. Normally, if there's a regulation that takes place there'll be an immediate suspension, an administrative suspension, while the investigation goes along. And then that could lead to either a revocation or permanent suspension.

SEN. KOHL: Well, you've heard testimony today that state authorities such as Secretary Galvin consider your CSA designation to be very little more than a marketing tool to gain access to seniors' money, and not a useful educational credential. How do you respond to what he said?

MR. PITTOCK: Our -- our education really builds a lot of empathy for seniors and it does help for anybody that's working with seniors. And the -- the disclosure statement that we require makes it very clear that it's not a marketing device, that this designation is a supplement, and it's a supplement to one's knowledge or credential or license that they hold. And the CSA designation alone does not imply expertise in health, financial, or social issues.

SEN. KOHL: Well, when a person goes out and says to potential clients, "I'm a certified senior advisor," that sounds pretty important, doesn't it?


SEN. KOHL: I mean, people who hear that, a certified senior advisor is -- I've been trained, I've gone through a program, I have a -- you know, I have a designation, I -- people who he comes into contact with, particularly seniors, oftentimes might understandably look at that person as being someone who's very, very well qualified to, you know, to assist them in their financial planning. In fact, isn't that what you're attempting? Don't you want your CSAs to be regarded as such? Isn't that the purpose of your program?

MR. PITTOCK: Well, what we want them to be regarded as and known as is somebody that's gone the extra step to understand the issues that seniors face and that we all face as we age.

SEN. KOHL: Right.

MR. PITTOCK: And there are really three parts to this aging process. It -- it's not just the financial or the -- the economics.

SEN. KOHL: But you would -- but would you describe them as real experts in this -- in this whole field? Your CSAs.

MR. PITTOCK: No, the CSA designation alone does not represent expertise in health, financial, or social issues.

SEN. KOHL: No. Do you think that there are some people who come into contact with your CSAs who are under the impression that it does represent expertise?

MR. PITTOCK: If the CSA represents himself correctly as our statement says they are to do, there should be no misunderstanding. If they do mislead or misuse the designation in any way, that designation will be revoked and they won't have the option to use it any further.

SEN. KOHL: Really? How many designations are revoked all the time?

MR. PITTOCK: There -- there have been 37 revoked.

SEN. KOHL: In what period of time?

MR. PITTOCK: That's in the past five years.

SEN. KOHL: In five years?

MR. PITTOCK: Yes. There are -- (inaudible).

SEN. KOHL: And you have how many total CSAs?

MR. PITTOCK: There -- there are approximately 12,000.

SEN. KOHL: Twelve thousand.


SEN. KOHL: Thirty-seven have -- they've been revoked.


SEN. KOHL: That's almost zero. That's close to being zero.

MR. PITTOCK: The -- the number of cases --

SEN. KOHL: How -- it would have to be -- these must be really egregious violations, if -- 37 out of 12,000.

MR. PITTOCK: Well, our code of professional responsibility is very clear that they -- they can't mislead a senior in any way. They've got to follow the rules and the regulations of their own license, and since this hearing dealt with the financial aspects of licenses and so on, those people are -- are obligated to follow the rules of -- whether it's a securities or an insurance license. And if in any way they violated that, then -- then the designation will be revoked.

SEN. KOHL: Okay. Good.

Well, gentlemen, anything you'd like to say? We appreciate your being here and you've -- you've provided good testimony and -- you've been frank and honest and informative, and it's been very good for this panel. But I'd like to give you a chance, as I have with the other panelists, to say a word or two before we let you go today.

Mr. Bhojwani, would you like to say something?

MR. BHOJWANI: I would. Thank you, Chairman Kohl.

I want to emphasize what you've heard many of your previous panelists talk about. There is clearly a change in demographics. There's clearly a change in the needs of this country's retirees, be they 59 years old, 65 years old, or 75 years old, there is clearly a trend where many of these retirees have a very real chance, a -- a very real likelihood of outliving their assets. There are a variety of solutions to this. There is no one single solution that will solve all of these needs. But we believe very strongly that our products, our annuities, our life insurance products have a role to play. Not the only role, and not a one-size-fits-all role, but we have a role to play and we very much look forward to being part of the solution as we move forward to collectively deal with these very real needs for our retiring Americans.

Thank you.

SEN. KOHL: Thank you so much.

And Mr. Pittock?

MR. PITTOCK: Senator Kohl, I would like to say this, that our -- our training benefits seniors, and we give professionals the information they need to communicate better, understand more effectively, and find seniors the resources that they need, because there are a lot of issues that -- that we all face with aging. So seniors deserve to work with professionals that have gone the extra step to learn about the whole aging process, which is the -- the health, the economic, and the social aspects of aging. And they all are important; you can't just succeed in one.

We work closely with regulators to ensure that our efforts are -- are very transparent, and we work to protect the seniors with the regulators. We've -- we developed a seminar, "Nine Tips to Avoid Financial Fraud," that our members have given hundreds of these around the country, and they're strictly to help people understand how to avoid financial fraud.

So one of the reasons that we developed the disclosure statement was to make it clear exactly what the designation confers, and I think every designation should -- should approach this with that -- that in mind.

And thank you for inviting me.

SEN. KOHL: Well, we thank you both for being here, as well as all the other panelists today. Clearly, we're talking about a very important issue in our society, our seniors, and what kind of information they get, based -- to make decisions on, in many cases, their meager resources, in trying to make them last their lifetime. And there's a lot of work to be done, and the information you've provided us is going to be very helpful. So again, we thank you for coming, and with that, this hearing is adjourned.


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