Beware of scammers staging seminars

Employers are being put on high alert for bad brokers and others who weasel their way into the workplace to stage free seminars that ultimately lead to devastating early-retirement scams.

Hint: If a pot of gold pops up on the Power Point, hold onto your 401(k).

The Financial Industry Regulatory Authority is urging human resources professionals to do their research before allowing financial professionals to conduct a seminar at the company cafeteria or conference room.

Unfortunately, we have had one too many cases where a few bad actors took advantage of workers.

One case involved a group of ExxonMobil Corp. employees in Baton Rouge, La. The blue-collar workers found themselves without jobs — and they lost huge nest eggs — after getting talked into retiring early by David L. McFadden, who held seminars for Exxon employees in the late 1990s.

He claimed they could afford to retire early by trading in their pensions for lump-sum payouts and liquidating assets in their 401(k) plans — and investing with him.

His outrageous projections: Earn 14 percent on investments — and withdraw 8 percent or more of savings each year. OK, reality check here: If you run those numbers as part of your planning, you’re destined for disaster.

Are such scams still going on? Apparently so; regulators are investigating some now.

Yet financial seminars are often popular brown bag events at many companies. After all, employees want information on managing their 401(k) plans, figuring out how much money they can spend in retirement and yes, deciding whether they’ll participate in corporate America’s buyout binge.

Sharon Burns, senior vice president of the International Foundation of Employee Benefit Plans in Brookfield, Wis., said her group is working with FINRA — the largest nongovernmental regulator for securities firms in the United States — to help benefits professionals take some necessary steps to review seminars.

“It helps them basically vet a speaker,” Burns said.

Employers and employees can go to www.finra.org and click on “Investor Information.” Then go to “Protect Yourself from Early Retirement Scams.”

Some steps: Check a financial expert’s credentials with FINRA or state regulators and review the presentation in advance.

If employers want, they can send questionable materials to FINRA Investor Education, 1735 K St. N.W., Washington, D.C. 20006-1506. Or they can call FINRA at (202) 728-6964.

John Gannon, senior vice president of investor education for the FINRA, formerly the NASD, said FINRA is now offering a second set of eyes to help managers avoid potential scams.

One red flag: Watch for graphics that suggest that anyone can make big money. Presentations must include a balanced discussion of the benefits — and risks of strategies or products.

As someone joked, no financial planner is going to show a pot of gold — and then show another picture of a family thrown out into the street.

Be wary of someone who suggests that you can cash in your life insurance policy using something called a life settlement or a senior settlement.

The pitch might sound like easy money to an early retiree or senior. But it could be a bad move. Under a life settlement, a third party will buy your existing life insurance policy from you for more than the cash surrender value but less than the death benefit.

But regulators warn that life settlements can have high transaction costs — plus you may be unable to buy a new insurance policy.

You will have to pay taxes on the lump sum life settlement that you receive. You also could lose state or federal benefits, such as Medicaid.

XSusan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at stompor@freepress.com.