The explosion in the number of financial planners in the 1980s has been matched by a surge in fraud and abuse, state securities regulators told Congress today.
The North American Securities Administrators Association, in a report to the Senate Banking subcommittee on consumer affairs, said losses to fraud and abuse totaled $397 million between mid-1986 and mid-1988.The losses were suffered by 22,100 investors in 79 separate cases pursued by officials in 30 states.
That compares with $91 million lost in 31 cases between mid-1983 and mid-1985, the association said.
"The absence of effective national oversight of the financial planning industry has created an enormous opportunity for con artists and ... (others) who have few scruples about how they earn their living," the association said.
The group, which represents regulators in all 50 states, said an "alarming rise" in large swindles contributed to the increase. It also said more aggressive enforcement probably led to more cases being uncovered.
"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.
A 1985 association survey turned up only one case where investors lost more than $10 million, while the latest check found five cases where losses totaled more than $30 million.
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 Securities and Exchange Commission requires companies offering advice concerning securities to register as investment advisers. But, in contrast to stock brokers, 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.
Another contentious issue is how financial planners, who are supposed to offer independent advice, are paid. Some work only for fees paid by their customers. But, according to an SEC study in February, 85 percent are compensated at least in part through commissions on what they sell.
In May, the SEC censured and suspended a New Mexico firm for failing to disclose it received commissions for the securities it recommended.
The International Financial Planning Association, based in Atlanta, says its membership has tripled from the end of 1982 to about 25,000. It estimates there are as many as 150,000 financial planners overall. About 13,000 firms have registered with the SEC as investment advisers.