Target-date retirement funds took a bad rap during the 2008-09 market meltdown. Some investors apparently thought that they wouldn’t lose any money in the funds or that they were sure to be safe at the target date.

Misunderstandings like these show the need for more information about how target funds work. The Securities and Exchange Commission proposed some useful new marketing and disclosure rules last month.

But don’t let those discussions deter you from making an investment now. Target funds are the best invention since the index fund for people building retirement savings. Combining the two — index funds inside a target-date fund — creates a winner…. continue reading

You say you’re too smart to get trapped by a free-lunch “senior seminar?” Guess again. Older people with good incomes and business or professional backgrounds are the tactic’s red meat.

You’re invited by a prominent financial firm (or what sounds like one) for an “educational” session on, say, estate planning or improving your retirement income. With free wine and roast beef on offer, you figure, “What can go wrong?” Then there’s a humming in your ears. When you wake up, you find that you’ve invested in something you regret.

Affluent seniors get sucked in because they have time on their hands, money questions in their heads, and no independent planner or adviser to consult. Half of the presentations are shot through with misleading claims, according to a 2007 study by federal and state securities regulators. A quarter of them pitch unsuitable products — too risky, too costly, illiquid — to the people who attend.

It’s gotten so bad that the AARP and the North American Securities Administrators Association teamed up last month to create a new “free lunch monitor” program to help seniors save themselves and others from the oil poured into their ears…. continue reading

You can’t turn your back on Congress for a minute. Just when you think an issue will be settled in favor of investors, a Senator oozes under the door and slides a quick pro-business, anti-investor change into a bill.

That’s how the equity-indexed annuity — a costly product with a woeful past — slipped out of the hands of a potentially strong regulator and into the cushioned lap of a weak one.

The Securities and Exchange Commission had planned to regulate these annuities, widely sold to older people, pending a review of the industry. A court decision last year affirmed that the products lie within the SEC’s jurisdiction.

The insurance industry fought back — using, as a weapon, Iowa Democrat Sen. Tom Harkin.  A last-minute change in the financial reform bill last week, inserted at Harkin’s behest, left oversight (such as it is) in the hands of the states. For savers and investors, that’s not good news…. continue reading

Consumers won. Banks lost. That summarizes the consumer piece of the financial reform bill.

On the other part of the bill that affects individuals, my verdict flips. Investors lost, Wall Street won.

Taking the consumer side first, color me thrilled that Congress created a potentially strong Bureau of Consumer Financial Protection. When President Obama proposed it last year, I thought it a pipe dream. The bankers were too powerful, politically, and able to throw too much money around.

But the one thing more powerful than banks is voter fury — and consumers back home were angry enough to frighten their representatives into doing a good thing.

The new bureau will oversee consumer lending products. It has the authority to force clear disclosure and fairer dealing, and block the kinds of predatory loans that fed the economic collapse…. continue reading

Senator Tim Johnson socked investors with what might be a knockout punch, during negotiations on the financial reform bill. Investor protection is down for the count. The new law, when passed, is going to leave you out.

Johnson, a South Dakota Democrat, laughs at the concept of “fiduciary duty”—the idea that people who advise you on investments should to put your financial interests ahead of their own.

At present, registered Investment advisers have a fiduciary duty toward you and your money. But there’s an exception for stockbrokers and insurance agents. They can—and do—advise you to buy financial products that benefit themselves more than they benefit you.

For example, it’s okay for them to offer you high-cost mutual funds when low-cost funds are available that invest the same way. It’s okay for them to sell you a high-cost, out-of-state 529 college savings plan when your own state’s plan costs less and gives you a tax deduction, too.

The version of financial reform passed by the House of Representatives would have stopped all that. The House brought brokers and insurance agents under the fiduciary rules when they offer personal financial advice.

The bill passed by the Senate punted, by telling the Securities and Exchange Commission to study the issue. The House and Senate are now negotiating their differences. … continue reading