Retirement Planning

The MPF system has been implemented for almost 6 years, but people in HK are generally not so alert to the importance of retirement planning. I have quite a few friends who are finance professionals but maintained most of their wealth in bank deposits. Hopefully they will soon realize that lack of investments would create a big difficulty for retirement.

But even you are so smart to find a financial consultant for retirement planning, please take their advice with caution. An unsuitable advice would have a far-reaching negative impact on your remaining life.

Last week NASD fined Securities America for US$2.5m for failing to supervise a broker David McFadden who lured long-term employees of Exxon Corporation into retiring prematurely with unreasonable and exeggerated promises of high returns from reinvested funds. Securities America must also pay US$13.8m in restitution to 32 former Exxon employees.

In seminars directed at long-term Exxon employees (aged between 50 & 60), McFadden recommended that they could retire early by liquidating the assets of their pension plans, depositing those assets in accounts with Securities America, and making investments in variable annuities, Class B / C mutual funds and ETFs.

McFadden also said returns on those investments would allow the employees to replace their current salary with monthly withdrawals from the new accounts. However, he illustrated the investment returns of 11% to 14%, which would be necessary to sustain the promised annual withdrawals.

Most of the customers entrusted McFadden with the entire pension proceeds and forfeited their right to receive a lifetime monthly benefit under their pension plan. Then they found that McFadden's program could not sustain the recommended withdrawals.

NASD has particularly released a new Investor Alert for those misleading retirement pitches.

In the UK, recently FSA also fined a financial planning firm for recommending people aged 50 or above to "unlock" their pensions by taking some or all of the pension benefits before they retire. This practice was considered by FSA as a "high risk business".

When HK people have become more concerned about retirement planning over time, more cases for unsuitable retirement advice would come out.