Compliance June 6, 2007

Citigroup Settles Inadequate Supervision Charges with NASD

For failing to properly supervise brokers delivering misleading information to plan participants during retirement seminars, Citigroup Global Markets, Inc. will settle with the NASD for more than $15 million and brokers involved will pay between $30,000 and $125,000.
Reported by
According to a press release from the private-sector regulator, NASD alleged that the bank failed to supervise a team of Citigroup brokers who, through misleading presentations, led more than 400 BellSouth employees in North Carolina and South Carolina to open more than 1,100 accounts with the Citigroup brokers and made “exaggerated and unwarranted projections of future earnings without fully explaining the risks involved” in withdrawing money from their retirement accounts early and rolling it over into brokerage accounts.
The employees were unsophisticated investors with little experience in the financial markets, who retired in their mid-50s. These employees, mostly with retirement savings of less than $350,000, typically cashed out their pensions and 401(k) accounts, and invested these proceeds and other retirement assets with the Citigroup brokers.
The Settlement
Citigroup will pay $3 million to settle the charges with NASD and pay $12.2 million in restitution to more than 200 former BellSouth employees, who saw the principal of their retirement savings drop by that amount as a result of basing their decisions off the brokers’ materials.
The greatest disciplinary fine by NASD against an individual broker went to the reported mastermind behind the sales campaign, Jeffrey Sweitzer, who was slapped with a $125,000 fine and an 18-month suspension. Matthew Muller was given a $50,000 fine and a nine-month suspension. Other brokers involved in the scheme received less than $60,000 fines.
Using charts, graphs, handouts and other documents at the seminars and meetings, the brokers’ sales presentations led the employees to expect that for 30 years they could earn approximately 12% annually on their investments and withdraw approximately 9% annually, according to NASD.
For instance, one document projected the amount a generic 53-year-old BellSouth employee would earn from an initial investment of $300,000. The projection sheet suggested that this typical employee would earn more than $1.8 million, could withdraw from $27,000 to $69,000 annually, and still have more than $770,000 in principal remaining 30 years later, at age 83.
NASD also found that as a result of Sweitzer’s and Muller’s sales presentations many of the BellSouth employees came to believe that they could afford to retire early by relying upon monthly withdrawals from their retirement savings, hinging their decision on the Internal Revenue Service rule that says a person under the age of 59 세 can withdraw a fixed stream of regular and equal payments from their retirement accounts without having to pay the usual 10% tax penalty for early withdrawals.
Many of these customers cashed out their nearly risk-free BellSouth pensions, their 401(k) accounts and other retirement assets and invested the proceeds with the brokers. Fees and commissions from those BellSouth employee accounts comprised a majority of the compensation earned by Sweitzer and Muller.
In Practice June 6, 2007

Perspective: Do Your Best to Move Beyond 'Doing Your Best'

The second of seven ineffective habits of retirement plan advisers
Reported by
Many advisers, confronted by circumstances that stall their business, give in to the reasoning of “let’s just keep doing our best” and better days will prevail.
When you’re in charge of your own destiny, however, this faith in your business’ ability to evolve for the better may lead to missed growth opportunities due to lack of vision.
A more effective approach may yield results when you align your compass toward the most meaningful business and client relationship strategy. Pointing your firm in the right direction will be much easier if you develop a compelling mission and goals that will inspire you and your staff.
The trigger, or rallying point to advance your business, will be unique. A classic segment of movie dialog is fitting here. In the 1991 movie City Slickers, Jack Palance’s grizzled character “Curly” asks Billy Crystal: “Do you know what the secret of life is?” Crystal lacks insight so Palance raises his index finger in the air and says, “One thing. Just one thing. Stick to that and nothing else matters.” Of course, as Crystal is counseled, the “one thing” is something you’ve got to figure out for yourself.
So, how can you frame the future of your business around one thing? You may find the best starting place is a clear mission that provides a target and direction. With a mission serving as your compass, you can create drive and energy, increase the intrinsic interest of your staff and produce a creative tension that will lead your business out of the stagnant existence of just “doing your best.”
The right mission, derived from a thorough assessment of your capabilities and your target market, can increase persistence and generate consistent performance.
In support of your mission clairvoyance, you may benefit from writing a vivid description of your future. Your ability to visualize what you want will help you actualize the necessary tasks to get there.
A quality description of your future should include:
  • client experience (what do clients really want, not what do you think they need)
  • employee experience (how empowered are they to deliver on the mission and feel good about their contribution)
  • business results (i.e., more profit, less effort)
Nail these aspects of your business and you’ll have a triple win; happy clients, happy employees, and personal success.
Consider this example that guided Henry Ford in changing the transportation world. This excerpt is from his introduction of the Model T in October 1908.
“I will build a motor car for the great multitude … It will be so low in price that no man making a good salary will be unable to own one and enjoy with his family the blessing of hours of pleasure in God’s great open spaces … When I’m through, everybody will be able to afford one, and everyone will have one. The horse will have disappeared from our highways, the automobile will be taken for granted…and we will give a large number of men employment at good wages.”
Enrich your description of the future by creating a uniqueness and special nature of your services. Don’t get so caught up in tactical stuff that you forget you are doing important work. Describe the feelings associated with this work and its results.
Together, your mission and vivid description of the future will establish decision-making criteria that can justify day-to-day actions of your business. Pursue the excellence of your mission and vision and, then, at each key decision, stop and ask, “will this lead to excellence?”
This exercise may require a lot of effort and revision, but it can guide your practice toward exceeding expectations and generating client advocates. In the end, you can feel confident that you have a better grasp of your firm’s direction and you may start to see the invisible.


Previous articles in the Ineffective Habits of Retirement Plan Advisers series:

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Matt Smith is managing director of retirement services with Russell Investment Group. He is responsible for DC research and strategic development of Russell’s defined contribution investment management business in the United States. Smith joined Russell in 2001. Over his 20+ year career, Matt’s experience spans the spectrum of the qualified plan business. Prior to joining Russell, Matt held the position of vice president and general manager of ADP’s west coast retirement services operations.

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