Fraud on Increase in Investment Planning Field, Survey Shows

WASHINGTON — A 30-state survey released Monday by state securities regulators shows that fraud and abuse in the fast-growing financial planning industry is on the rise, particularly in multimillion-dollar investments.

The North American Securities Administrators Assn. said 22,100 investors lost $397 million in 79 cases pursued by state securities officials between mid-1986 and mid-1988.

That compares to $91 million lost in 31 cases between mid-1983 and mid-1985, according to a similar 30-state survey conducted by the association.

The group, which represents regulators in all 50 states, said an “alarming rise” in large swindles as well as increased enforcement efforts at the state level contributed to the increase.

“Most disturbing is that we are seeing a substantial surge in the number of ‘big ticket’ cases with investor losses in the eight-figure range,” said James C. Meyer, Tennessee’s top securities regulator and president of the association.

The 1985 survey turned up only one case in which investors lost more than $10 million, while the latest check found five cases in which losses totaled more than $30 million.

Meyer plans to present the survey today to a subcommittee of the Senate Banking Committee, which is holding a hearing on the mushrooming financial planning industry, which is largely unregulated on the federal level.

No Educational Standards

Meanwhile, the Securities and Exchange Commission will consider a rule Thursday that would require investment advisers to keep records for five years to back up performance claims made in their advertising.

With the proliferation of investment options in recent years, millions of Americans have turned to financial planners for advice on saving for retirement, college education or buying a house.

The SEC requires companies offering advice concerning securities to register as investment advisers. But in contrast to stockbrokers, who are required to pass an exam, there are no educational standards.

Also, financial planners offering advice that does not involve buying securities do not have to register. Neither do lawyers and accountants whose advice is incidental to their work. And individuals can work for a registered planner without registering themselves.

The International Financial Planning Assn., based in Atlanta, has about 25,000 members. But it estimates that there are as many as 150,000 financial planners. There are about 13,000 firms registered with the SEC as investment advisers.

Get Rid of Rotten Apples

Charles Finn, a financial planner in Hartford, Conn., and chairman-elect of the association, said his group has been pushing for more federal regulation, including the creation of a self-regulatory organization similar to the National Assn. of Securities Dealers, which oversees brokers who trade over-the-counter stocks.

“We’re talking here about rotten apples, and my feeling is we should get those rotten apples out of the barrel,” he said. “One of the things I’m concerned about in this business is that somebody can call himself a financial planner with impunity.”

The 30 states included in the 1988 survey were: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Maine, Maryland, Massachusetts, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wisconsin.

Connecticut, Oregon and Wisconsin were not included in the 1985 survey. Delaware, Michigan and Wyoming were part of the earlier study but not the 1988 survey.