Thirty-seven former clients have filed complaints against Kathleen Tarr, a broker who worked for Royal Alliance Associates, after encouraging hundreds of departing AT&T employees to roll over their retirement money into the type of risky high-commission investments that FINRA warns about. These complaints, together with similar complaints against other brokers, underscore a massive rollover boom in the U.S. Former employees shifted $321 billion from 401(k)-style plans to IRAs in 2012, an increase of approximately 60% in one decade.
While generally retirees can leave their savings in 401(k) plans, financial firms lure them in with cold calls, Internet advertisements, storefront signs, and cash incentives to switch to IRAs, lauding the advantage of the IRA’s expansive variety of investment choices over those of 401(k) plans. However, IRAs are associated with expensive and high-risk investments, and they often charge higher fees than those associated with 401(k) plans, providing brokers an incentive to promote rollovers.
Given this incentive for brokers to promote rollovers, federal regulators are combating rollover abuse. The U.S. Labor Department plans to institute a fiduciary standard by proposing in January rules that brokers and other advisers act in clients’ best interests during rollovers. FINRA, too, has stated that it will heighten its scrutiny of IRA rollovers.
Tarr, who stands by her advice, was dismissed from Royal Alliance in 2010 for failing to follow a policy for pre-approval of variable annuities. As her customers’ investments went south, thirty-seven clients complained about her to FINRA. Four of these complaints have been settled, fifteen are pending, and eighteen were closed without action. Tarr is now the president of AeroComputers Inc., an Oxnard, California aviation company that caters to law enforcement. She continues to believe in the products she sold while at Royal Alliance but notes that the firm never objected to her practice, stating that “Royal Alliance could have said to me five years ago, ‘We’ve been looking through your book of business. We think you’re a little heavy on variable annuities. Let me suggest alternatives.’ They never said anything. Nothing.”
If you or someone you know has lost money as a result of an investment, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies.