Good Evening
In the news is yet another alleged (innocent until proven guilty disclaimer applies…) case of fraud involving federal retirees. In this recent (alleged) scheme, four Atlanta, GA brokers allegedly convinced federal retirees to roll their TSP accounts into annuities, which reportedly had very high fees and were reportedly represented as being “approved” by the TSP program itself.
SEC Press Release: https://www.sec.gov/news/press-release/2017-135
SEC Complaint: https://www.sec.gov/litigation/complaints/2017/comp-pr2017-135.pdf
For general heads-up and situational awareness, please be suspicious of the following things when investing your money, especially the “nest egg” called the TSP. Red bold represents major warning signs.
- High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity. “Too good to be true” rule applies.
- Overly consistent returns. As we know, markets go up, markets go down. You can’t control the waves in the ocean. Investment values tend to go up and down over time, especially those offering potentially high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.
- Unregistered investments. Schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
- Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most schemes involve unlicensed individuals or unregistered firms.
- Secretive and/or complex strategies. Super complicated investment ? Esoteric, complicated strategy ? Avoiding investments you do not understand, or for which you cannot get complete information, is a good rule of thumb.
- Issues with paperwork. Do not accept excuses regarding why you cannot review information about an investment in writing. Also, account statement errors and inconsistencies may be signs that funds are not being invested as promised.
- Difficulty receiving payments. “Check is in the mail” rule. “Your money is locked up right now and cannot be accessed” etc. Be suspicious if you do not receive a payment or have difficulty cashing out your investment. Keep in mind that fraudulent investment promoters routinely encourage participants to “roll over” investments and sometimes promise returns offering even higher returns on the amount rolled over.
Additionally, be wary of investment advisors, financial planners, stock brokers, etc, who are overly eager to get their hands on your TSP balance. Some valid reasons exist to roll a TSP over, but cheaper fees is not one of them, as the TSP is about the cheapest retirement “holding tank” that exists (TSP, 401k, IRA’s are basically containers for money, inside that container are your individual investments, be it Mutual Funds, Stocks, ETFs, etc. Consider the TSP a holding tank, or container). Check out your potential new advisor. The following sites may be useful:
FINRA Broker Check: https://brokercheck.finra.org/
SEC Advisor Check: https://www.adviserinfo.sec.gov/
PACER US Court Records (need an account): https://www.pacer.gov/
State Comptroller Database checks. Is the financial advisor claiming to be a registered LLC ? Database checks will reveal this. If not located, I would be suspicious. The State of Texas version is here: https://mycpa.cpa.state.tx.us/coa/
Would I do all of the above if I was investing $500 in a new hot stock ? Probably not. Am I rolling over a $1M TSP balance, along with a $1M IRA balance, into something called the Unlimited Opportunities Fund ? Operating out of a UPS Store mailbox ? Managed by a guy who carries a prepaid Trac-Phone ? Yes absolutely. Be careful who you listen to, we have some great folks in the federal retirement “information space”, Tammy Flanagan, Dan Jamison are two of them, both vetted and trusted professionals. If you can’t identify the person behind the investment, website, etc., I would proceed with caution.
Be safe out there folks. Talk to you soon…
-Bill Pritchard
