Kathleen Tarr says AT&T Inc. employees used to look to her as “their de facto 401(k) expert.” Visiting their homes and offices, she advised them on their retirement plans as they called up balances on computer screens.
But Tarr actually worked for Royal Alliance Associates, a brokerage firm owned by insurer American International Group Inc. (AIG). She encouraged hundreds of departing AT&T employees to roll over their retirement money into the kind of risky high-commission investments that Wall Street’s self-regulatory agency warns against on its website.
Tarr’s clients paid higher fees in their brokerage accounts than they would have in their AT&T plan. There’s no way of knowing exactly how they would have fared if they had left their savings behind. Employees in 401(k) plans, including AT&T’s, also faced losses during the 2008 financial crisis, though the market has since rebounded to reach new highs.
Tarr, who left Royal Alliance in 2010, stands by her advice, saying the investments held up well in a difficult market. She said she didn’t even know about the commissions each investment paid and wanted to do what was best for her clients.
Kristen Georgian, a Bank of America spokeswoman, said such incentives are “commonplace for many leading brokerage firms.” The company informs clients about their options, “including keeping their assets in place,” she said.
“We believe strongly in rollovers,” said Mike Loewengart, E*Trade’s director of investment strategy. Clients benefit from more transparent fees and broader investment options in an IRA with E*Trade, he said.
An alert on the Finra Website first posted in 2011 warns that non-traded REITs are hard to cash in, may not be a diversified real estate investment, and that commissions and other expenses can be as much as 15 percent.
Grathwol said his REITs’ value fell by $100,000. “We were depending on it as our life’s savings,” said Grathwol, 69.
Customers often choose variable annuities because they offer a guaranteed minimum lifetime income, which is assured no matter how their investments perform, said Andrew Simonelli, a spokesman for the Washington-based Insured Retirement Institute, which represents companies that offer annuities.
“While tax deferral is certainly part of the value proposition of annuities, it’s not the only reason,” Simonelli said.
McCollam said that Lew, Beal, and Holloway showed modest gain in their account, when the dividends from REITs are taken into account.
“We feel like we gave as good advice as we could have given,” McCollam said.