Layoffs Provide Opportunity for Brokers, Potential Pitfalls for Investors

Investment News, a newsletter for financial advisers, recently reported that employee layoffs can provide a bonanza for financial advisers.  Every layoff or firing can mean an opportunity for an investment professional to earn fees by opening a new individual retirement account (“IRA”) rollover account to receive the assets formerly held in an employee account and by actively managing those assets.

The economic downturn and widespread layoffs mean that IRA rollovers are expected to increase.  The newsletter recommends that proactive advisers drum up new business by making it their business to know which firms in their area are expecting layoffs, and then contact their clients who are employed by those firms, invite them to a seminar and encourage them to bring a guest.

For someone facing major life changes brought on by sudden unemployment, it can be tempting to just turn over their investment decisions to someone else.  But acting too quickly, without a proper investigation, can lead laid off employees to unknowingly trust their investments to someone with a history of customer complaints or someone who will put them into high-commission products like variable annuities.  After a lay-off, firing or early retirement, it is even more important to find a reputable investment professional and guard against incompetent or deceptive investment advice.

If you are rolling over your IRA, be sure that you know who you are dealing with and that you understand the fees you will be charged, including any surrender charges.  For information on how to protect yourself from unscrupulous investment professionals, read our Investor Education article, “Know Your Investment Professional.”

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