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The head of the U.S. Securities and Exchange Commission says she wants to take a closer look at the life settlement business.
“Unfortunately, many seniors may not fully appreciate the implications of selling their life insurance policy to someone who is purchasing it for investment purposes," SEC Chairman Mary Schapiro said today at the Solutions Forum on Fraud, which was sponsored by an institute connected with the American Association of Retired Persons, Washington, and the National Consumers League, Washington.
“It is possible that seniors may lose the ability to obtain life insurance in the future, that they may lose certain tax benefits and that they may find that certain personal information about their health is being shared with or monitored by strangers,” Schapiro said during a wide-ranging talk, according to a written version of her remarks posted on the SEC website.
“On the other side of the transaction, investors may not have a complete understanding of the investment risks associated with a life settlement policy, including the risks related to the health and life expectancy of the insured,” Schapiro said.
The SEC also will be investigating the marketing of retirement investments in general, she said.
“America’s future retirees deserve products that they can understand and evaluate,” Schapiro said. “This means that complex fee arrangements or product descriptions should be discarded in favor of simple, clear disclosure. Our future retirees should have access to products that will help them meet their retirement goals without imposing inappropriate risks.”
To protect investors, the SEC is prepared to be aggressive in enforcing its investor protection rules, she said.
Schapiro singled out the use of target-date mutual funds by defined-contribution plan providers as one issue her agency would be looking at carefully. These are funds that gradually ease investors into progressively more conservative investment as they approach retirement age.
“The ‘set it and forget it’ approach of target-date funds can be very appealing to investors, especially for retirement investors who are overwhelmed by more complicated investment options,” she said.
Once concern is that during the 2008 economic downturn, some target-date funds lost as much as 40% of their value, she said.
The SEC is “currently focusing on the use of a target date in a fund’s name and how the meaning of that date—and the nature of a fund’s investments—can be better communicated to investors,” she said.