By Mariano Scialpi

Senior citizens have found themselves in the cross-hairs of scammers and fraudsters throughout the United States. Financial exploitation occurs when a person misuses or takes the assets of a vulnerable adult for his/her personal benefit. This exploitation frequently occurs without the explicit knowledge or consent of a senior or disabled adult, depriving him/her of vital financial resources for his/her personal needs. New data has shown that senior citizens become increasingly vulnerable to all forms of frauds as they age. This data is concerning for a class of people that hold “83% of the wealth in America.”

The numbers are even more alarming in the securities industry where the AARP recently reported “victims lose $3 billion annually or more than $120,000 per household.” The losses reported by the AARP symbolize the life savings of a generation who can longer work to maintain a household. The Investor Rights Clinic has represented many seniors who have lost their life savings due to financial exploitation. Although the work the Clinic performs provides essential relief to victims of exploitation, changes in policy are necessary to protect a vulnerable class of citizens.

Before 2018, the numbers from the AARP report were aggravated by the lack of statutory language protecting whistleblowers in the industry. Luckily, in May, senior citizens could applaud the first anniversary of the Senior Safe Act (SSA). SSA, a federal program modeled on a program by the same name in Maine, has attempted to empower financial service providers to “identify warning signs of common scams and help prevent senior citizens from becoming victims.” More specifically, the act “addresses barriers financial professionals face in reporting suspected senior financial exploitation or abuse to authorities.” The act addresses these barriers by allowing broker-dealers the opportunity to train their employees on how to detect and report “senior financial exploitation.” Broker-dealers who train their employees are provided immunity provisions from liability in any civil or administrative proceeding, particularly regarding violations of privacy requirements.

Although the SSA represents an important step towards protecting elderly citizens, a lot more can be done in terms of policy. One financial advisor advocates for quizzing clients over 60 on their decision-making abilities. Basic tests might be a simple way to ensure that senior citizens are fully aware of the decision they are making regarding their finances. One thing is sure, financial exploitation of the elderly is a problem that will not go away in the future, and only Congress has the power to protect its constituents from further abuse.

By Mathew Slootsky

On May 30, 2019, the President issued a threat to apply tariffs of up to twenty-five percent on goods imported from Mexico. Although the President later canceled the planned tariffs, he may decide to impose tariffs at a later date. The first thing that comes to mind when reading this for most consumers is, “How will this affect me?”

The popular fast-food restaurant Chipotle experienced a 7% dip in their stock price as a result of the news of the threatened tariffs. Chipotle uses avocados grown in Mexico and sells Corona and Modelo, two Mexican beers. A typical investor would reasonably believe Chipotle to be a reliable stock. Their restaurants are typically busy and there has been impressive expansion throughout much of the United States. But those investors lost a significant amount of value based upon the rumored tariffs. If rumors of the tariff are causing a ripple-down effect, imagine what could happen if these tariffs came into effect? Under this scenario, it is likely that consumers will see additional losses.

Not only is the food and beverage industry at risk for consumers holding securities because of lurking tariffs, there are other industries that are also affected. For example, Samsung Electronics Co. produces many of their televisions in Mexico. The Samsung televisions that are sold to the United States from Mexico could potentially see a price increase. As a result of this possibility, Samsung’s stock also fell on the threatened tariffs news. Additionally, the auto industry is affected by this threatened tariff. Many vehicles are manufactured in Mexico, including Audi, Volkswagen, and others. This rumored tariff will cause an increase in price for these vehicles as well, which will likely cause the stock price to decrease in value.

Many investors believe that a trade war against Mexico may become the catalyst that starts the next recession in the American economy. In fact, a recent study from Duke University showed that the two-thirds of chief financial officers believe that the economy will fall into a recession by the third quarter of next year, as a result of this plausible trade war.

As securities prices fall due to the trade war with Mexico, many investments will likely lose money. Consumers will be hesitant to spend extra money for a Samsung television made in Mexico when they can purchase a Sony television manufactured in a country that is not paying a 25% tariff. Mexican and American trade is heavily intertwined, and a trade war affects nearly every citizen. Automobiles, electronics, and food are only some of the most popular securities that will be directly affected by these tariffs. Many of these securities were previously considered relatively conservative, as the past trade relationship between the United States and Mexico was not only predictable, but very stable. Now, the relationship between these two countries is not as stable as it once was.

Consumers will need to be cognizant about where products are manufactured, and where companies import their goods from. If these tariffs against Mexico are enacted, then consumers may want to avoid investing their hard-earned monies in companies that are doing business in Mexico.

By David McDonald

The 2008 crisis exposed critical regulatory and supervisory failures in the current financial system. This is not news, and, in fact, some would argue that oversights and loopholes are part and parcel to the system. After all, there is always a potential for mismanagement where regulation must be reactive to new disruptors in markets. However, developments since the ’08 crash have emerged that might have the power to encourage a new proactive stance. Enter the rise of “RegTech” or regulatory technology. As a subsector of financial technologies (“FinTech”), RegTech was initially created as a way for financial companies to reduce compliance costs by automating information gathering and reporting. Since then, however, the niche has exploded at an alarming rate. Technologies include everything from machine learning to cut down on time filling out forms to real-time authentication for digital transactions. Considering the World Bank estimates that eight percent of gross national product (GNP) is spent on regulatory compliance, any technologies that can streamline processes and reduce costs are certainly welcome.

However, this is where our issue arises. As more entrepreneurial companies enter the RegTech sector, financial institutions are receiving multitudes of disjointed possible answers rather than one uniform solution. To use a simplified example, consider software such as TurboTax. It’s an efficient way for households to fill out multitudes of tax forms in one convenient system. However, when the “household” is an international financial institution with countless regulatory agencies across the globe to report to, the household is going to need some crazy computing power to make sense of everything. RegTech is an opportunity to use technology in order to streamline the filling out of these regulatory forms and reduce the amount of manpower needed simply to disclose that information. But, the system only works if there is one comprehensive solution. To return to the TurboTax example, there needs to be one TurboTax rather than fifty different firms all trying to sell their niche version of the software.

There are two likely ways to achieve this goal: a RegTech innovator will come up with a solution that dominates the market and becomes the main supplier of regulatory technology or, ironically enough, through continued restrictive regulations. To expand on the second option, if regulators can detail exactly what standards a RegTech firm should be catering to, then the regulators have an opportunity to save these financial institutions billions in manpower that could be dedicated elsewhere. It would require a proactive approach by regulating this new sector in a way that ultimately benefits the financial institutions, rather than waiting for some failure in the market (a data breach caused by a cyber-attack, for example) to spur lawmakers into action. Taking such steps can be extremely beneficial as it sets a list of regulations for a still fledgling market that can then grow into what regulators want it to be, rather than letting the sector run rampant until regulators are forced to react to a catastrophe that they could have prevented.

By Lucas Hsu

Most investors are familiar with mutual funds, a form of investment company regulated by the Securities and Exchange Commission under the Investment Company Act of 1940.  In fact, a majority of investors’ retirement and taxable investment accounts are comprised of mutual funds. However, investors are often unaware of another type of investment company, called a closed-end fund (CEF).  Unlike mutual funds, which represent $18.7 trillion in assets, CEFs hold over $300-billion in assets.

Unlike mutual funds, which offer an unlimited number of shares to investors, CEFs only offer a fixed number of shares during the fund’s IPO. Following this initial sale, investors have an opportunity to buy these shares on a secondary market, such as the NYSE or the Nasdaq Stock Market. In a secondary market, investors can often buy CEF shares at a discount, which means the price of a share is less than the value of the assets held in the fund. The benefit of the discount is realized when a CEF becomes popular. As the market demand goes up, share prices also go up, which in turn increases the return on investment. Also, the use of an IPO creates “a solid base of capital” that allows a fund manager to buy riskier, but potentially more profitable assets, such as those in emerging markets or real estate deals.

Additionally, CEF managers have the ability to use leverage to “double down” on winning positions. This makes a closed-end fund attractive to the income focused investor because the CEF’s gains will be amplified in a rising market, leading to higher yields. However, the use of leverage is a double-edged sword. Rising interest rates can lead to a reduced payout and a decrease in the value of the individual securities held by the fund. Furthermore, investors cannot assume that the distribution they are receiving comes from the income generated from the securities in which the fund is invested. These distributions may be a return of capital, which is simply the fund returning shareholders’ money.

Before diving head first into a CEF, it is a good idea to do more research by carefully reading the CEF’s prospectus in order to understand its investment objectives and the risks involved. Additionally, investors may also refer to the SEC’s information page regarding CEFs, as well as, FINRA’s Investor Alerts page in order to properly determine whether a CEF is the right investment for their portfolio.