The American Association of Retired Persons (AARP) has targeted Wall Street sales practices as the focus of a possible national awareness-raising campaign.
According to Laura Polacheck, a senior policy analyst for the group, the AARP, along with other consumer organizations, would like to know if Americans really understand industry compensation practices and if they understand how those practices impact the sales and investment advice offered by brokers.
They would also like to know why so many of the recommendations for reform proposed by the 1995 Tully committee report appear to be doing little more than gathering dust.
"We want consumers to know how the industry works and why already discussed remedies for questionable practices just aren't being implemented," she says.
Although no formal agenda has yet been set, the AARP and its colleagues--an informal group that Polacheck steadfastly refuses to label a task force--will likely begin their activities by surveying consumers and by holding discussions with industry regulators including the NASD, NASAA and the SEC.
According to spokespersons for the three regulators, no meetings with the consumer groups have yet been scheduled.
The AARP, according to Polacheck, is particularly interested in the issue because the demographics of their membership--older people with many years of accumulated wealth--makes them prime targets for less than scrupulous brokers.
"Do consumers know how much of a broker's compensation revolves around product sales? Do they know that when brokers advise someone to buy a certain product it may be to win a contest? Too often there is a wide gap between recommendations and motivations," she says.
The Tully committee report, chaired by former Merrill Lynch head Daniel P. Tully, criticized some long-standing industry compensation practices including contest-driven incentive programs, accelerated payouts and up-front bonuses. Although many in the industry, including the Securities Industry Association, endorsed many of the report's provisions, it remains mostly up to firms to comply with the recommendations. This is something the AARP sees as a big part of the problem.
"It's well and good that the industry says they support the report's recommendations. But what does that mean? The recommendations are either implemented or not. And right now, nothing is happening," Polacheck says.
One goal of the group might be to make the recommendations mandatory.
"We understand that sometimes firms are afraid to adhere to voluntary guidelines because they are afraid they lose out to competitors that don't. Making things mandatory makes it easier for everyone," she says.
Polacheck denies that the AARP was approached by SEC Chairman Arthur Levitt to take up issues of broker compensation. She says it was her idea, and she meant it to be an internal AARP investigation. She adds that she has been surprised by press attention on AARP's involvement and after a second phone call from RR magazine, says she isn't prepared to discuss any more details with the media.
However, one SEC source says that if Levitt is not the driving force behind the initiative, he is at least a "very interested observer."
