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Not just 401(k) Rollovers into IRAs, Brokers Target Retiring Employees with High Commission Variable Annuities and Non-Traded REITs

Samuels Yoelin Kantor LLP

A Bloomberg article released yesterday considers the results of a three-month investigation into 401(k) rollovers for retiring employees (Retirees Suffer as $300 Billion 401(k) Rollover Boom Enriches Brokers). The article focuses on former Royal Alliance brokers Kathleen Tarr and Richard McCollam, whose clients included hundreds of retiring AT&T employees. According to FINRA’s BrokerCheck, dozens of former clients of Tarr and McCollam have filed complaints relating to sales of risky, illiquid investments and improper 72(t) withdrawal tax advice.

According to the Bloomberg article, Richard McCollam said that he and Kathy Tarr signed up as many as 500 customers, most from AT&T, and earned $1 million in commissions in the duo’s “best year.” McCollam also said, according to the article, that they recommended that clients put 60% – 70% of their money in variable annuities, and the balance would end up in non-traded REITs. A startling statement, given the unusually high sales commissions and operational costs associated with variable annuities and non-traded REITs. FINRA and other securities regulators have issued warnings to investors and brokers about variable annuities and non-traded REITs. In some states, including Oregon, variable annuity sales were the subject of enough investor abuse that the Oregon legislature changed the law to make variable annuities “securities” under the law, to help protect investors from abusive sales practices.

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