Lottery winners taken advantage of by investment firm

E

explanade

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Joined
May 10, 2008
Messages
7,551
A working class couple won the Powerball in 2008 and wanted to set up a foundation to fund research into a disease which took the life of their grandson.

A local, regional firm put their money in variable annuities, with high fees and commissions. Arbitration has ordered the firm to pay damages.

The Rosenaus promptly used $26.4 million of their winnings to fund a nonprofit, now known as the Rosenau Family Research Foundation. Its mission is to seek treatments for, and support the families of, children with Krabbe disease.


Having almost no investment experience themselves, the couple hired John Priebe, a local financial adviser and insurance agent, to manage the family’s and the foundation’s money.


Priebe worked for Principal Securities, the brokerage and investment-advisory arm of Principal Financial Group, the Des Moines-based retirement, asset-management and insurance giant. He claimed to be putting his new clients’ best interests ahead of his own, but that’s not what the evidence suggests.


Last month, an arbitration panel run by the Financial Industry Regulatory Authority instructed Principal Securities to pay $7.3 million in compensatory damages to the Rosenau foundation.


Principal Securities has until July 15 to bring a motion in court to vacate the award, according to Donald McNeil of Heley, Duncan & Melander in Minneapolis, an attorney for the Rosenaus.


During the arbitration proceeding, the firm denied the allegations, which included the selection of unsuitable investments, failure to supervise Priebe and failure to disclose fees and expenses. Principal declined my requests for comment.
Click to expand...

Read in The Wall Street Journal: A Couple Won the Powerball. Investing It Turned Into Tragedy. — The Wall Street Journal

An industry-created arbitration panel ruled against the firm.

Oh and the article noted how much better they'd have done with a low-cost index fund.

I'm sure figuring out what to do with such a huge windfall was overwhelming for them, especially if they never thought or researched managing millions.

I think I joined ER around 2008, so glad I did, I've learned a lot.
 
Yes, quite a shame actually. Their advisor soaked them for commissions and fees. The firm allowed this to happen (lack of oversight). Their advisor ended up taking his own life after the truth came out. Sad story in every direction.
 
ER Forum community members have exceptionally good understanding of how to manage home finances, money and investments, and most learned on our own.

There are many more people out there who don’t understand and also don’t know how to get help or choose advisors. It’s a shame, and also something easily exploited by financial predators.
 
The story has a paywall to block non-subscribers. I don't know if the WSJ does it, but some of the newspapers I subscribe to online has a "share" feature where you can forward a link with access to a story.
 
I'm tempted to use the Claude Rains line from Casablanca. "I'm shocked. Shocked..."

So glad there is still (occasionally) some justice in the world.
 
Mr._Graybeard said:
The story has a paywall to block non-subscribers. I don't know if the WSJ does it, but some of the newspapers I subscribe to online has a "share" feature where you can forward a link with access to a story.
Click to expand...

It's on MSN.

 
I have thought long and hard about this and there is no easy answer when someone gets a windfall. If it were a family member or dear friend I would tell them the following if they come into a life-changing windfall.

Deposit all of the net proceeds in Vanguard/Schwab/Fidelity (take your pick) and tell an advisor there to put 50% into a 1-year DCA into a SPY/500 fund or ETF and you will take the dividends in cash to spend or save. Tell the advisor you want to put the rest into a short-term (3-6 month) zero-coupon treasury ladder until you decide what to do with the cash/fixed-income half of your new-found wealth. Tell this to the advisor at one of these three brokerages and they will know what to do.

For most people experienced in this it is easy to understand. For someone who wants more touchy-feely FA conversations I wish them luck. If they don't want to heed my advice for this simple 50-50 plan I will give them one last piece of advice: Whatever you do, absolutely whatever you do, do not pay commissions, loads or administrative fees and pay your FA an hourly rate where he or she has no piece of your action.

Unfortunately, the vast majority of people who stumble into life-changing wealth cannot grasp these concepts because "it doesn't sound right." Most will get convinced that an AUM arrangement is best because their advisor told them so. I wish them luck.
 
Yes, I saw this story, too. (You can read WSJ articles through an Apple News subscription, in which you can read all kinds of things, though it has a lot of bad (sponsored) personal finance material.) Tragic. I’m glad the winners got some recompense. I’m glad, too, I got educated myself on personal finance. I often think I could help such people a lot, charge them a lot less and still make out pretty well. I think the same of major pro athletes — though I’m glad to hear pro leagues are increasingly providing financial advice, sometimes led by educated former pro athletes themselves. Meanwhile, the public at large still is very behind on this education and wind up shorting themselves.
 
Route246 said:
Unfortunately, the vast majority of people who stumble into life-changing wealth cannot grasp these concepts because "it doesn't sound right." Most will get convinced that an AUM arrangement is best because their advisor told them so. I wish them luck.
Click to expand...
Once we are gone our investments and property will be divided between grown son and daughter. My concern is they will be taken advantage by an unscrupulous FA and family (cousins with their hands out). Neither have experience with investing or dealing with a large sum of money so I have set up suggested guidelines so they will be able to live the rest of their lives comfortably. I won't ever know if they listen but it is the best I can do.
Many people are willing to separate you from your money.
 
This is sad and it seems to happen to many lottery winners. Those of us who accumulated $$$ the hard way, a little at a time, hanging on through market downturns and our own blunders along the way don't let go of it so easily.

Call me a spoilsport but maybe anyone who wins over $1 million should be required to take a financial literacy course before receiving proceeds.
 
athena53 said:
This is sad and it seems to happen to many lottery winners. Those of us who accumulated $$$ the hard way, a little at a time, hanging on through market downturns and our own blunders along the way don't let go of it so easily.

Call me a spoilsport but maybe anyone who wins over $1 million should be required to take a financial literacy course before receiving proceeds.
Click to expand...
I'm pretty sure that the shark community would oppose that plan...
😡
 
the most important decision is to buy a lottery ticket in a jurisdiction where winners can remain anonymous.

and there aren't many of those left here in the USA.

my lottery dream is to buy a ticket from of the above places then win the MM when the multiplier is 5x.

but take the payout over 30 years, which increases 5% annually...as a decent, fixed-COLA "pension."
 
Badger said:
Once we are gone our investments and property will be divided between grown son and daughter. My concern is they will be taken advantage by an unscrupulous FA and family (cousins with their hands out). Neither have experience with investing or dealing with a large sum of money so I have set up suggested guidelines so they will be able to live the rest of their lives comfortably. I won't ever know if they listen but it is the best I can do.
Many people are willing to separate you from your money.
Click to expand...
Our son will inherit somewhere north of $1,000,000. With his enthusiastic approval that money will go into a trust that unscrupulous FAs will not be able to break and the money will be available to him as he needs it within reason. No Ferraris for example but probably a very nice fishing boat and probably a new truck. He will have a very comfortable retirement and the money will be safe.
 
Badger said:
Once we are gone our investments and property will be divided between grown son and daughter. My concern is they will be taken advantage by an unscrupulous FA and family (cousins with their hands out). Neither have experience with investing or dealing with a large sum of money so I have set up suggested guidelines so they will be able to live the rest of their lives comfortably. I won't ever know if they listen but it is the best I can do.
Many people are willing to separate you from your money.
Click to expand...
Guidelines are a good idea however your concerns are real.

OldShooter said:
Our son will inherit somewhere north of $1,000,000. With his enthusiastic approval that money will go into a trust that unscrupulous FAs will not be able to break and the money will be available to him as he needs it within reason. No Ferraris for example but probably a very nice fishing boat and probably a new truck. He will have a very comfortable retirement and the money will be safe.
Click to expand...
Wise approach, especially since he is in agreement. It makes it easy to turn people down when they have their hand out. Our wealth is very stealth so none of our friends or family knows, in fact just the opposite, many think we are not FI and that is why I continue to work at age 67. Some actually feel sorry for us because they believe we are facing uncertain financial future in our old age. Heck, many don't know we paid off our mortgage 15 years ago when we refinanced and paid additional principal and got it paid off in 12 years. The only ones who bother me now are FA who have premium LinkedIn access and fill my mailbox and occasionally call with FA pitches.
 
I think about this subject when the lotteries start getting high. They start having news items about if you win you should get a team of people, lawyer, tax accountant, financial advisor before you claim your winnings. How the heck do you find these people? I can't imagine finding a local group of people and wouldn't you need a large financial institution. If you call a lawyers office do you ask if they are familiar with laws about State lotteries. If you win millions I can understand needing this group of people. I am comfortable managing my couple of million but not 10's of millions.
 
Route246 said:
I have thought long and hard about this and there is no easy answer when someone gets a windfall. If it were a family member or dear friend I would tell them the following if they come into a life-changing windfall.
Click to expand...

I would give them an easy answer: do as little as possible. Put the proceeds in something simple right away - a savings or money market account (or multiple, if one is concerned about FDIC insurance) - then take a deep breath, and spend a year studying your options. If you can, maybe pay off some debts right away, or (one you understand them) put it in a broad market balanced fund, but that is it.

It is a windfall you were not expecting. Why rush to figure out how to invest/use it? Who cares if you are not immediately getting an "optimal" return? Whatever even the minimal return you get is going to be more that you would have gotten without the windfall. Your world will not end if you keep it simple and take your time.

One of our DS's friends was a high first round pick in a pro sport. While he is no longer in the league, he is still well off, from his point of view. I had a chance to talk to him, and he talked how he just put his high 7 figure guaranteed rookie bonus "in the bank earning interest" while he and his parents (who were trustworthy) boned up on personal finance. He was approached almost daily by folks promising how they could double or triple his money "in a short time" - his view was "Why? I already have more than I will need." In his view, looking back, he felt he could have lost 90% of that money if he has rushed to do something based on these "advisors".
 
splitwdw said:
I am comfortable managing my couple of million but not 10's of millions.
Click to expand...

I don’t see it being a problem. If I don’t care about tax efficiency and managing my estate, I’m sure I could go to Fidelity, Schwab, or Vanguard and buy more of the index funds I already own. I doubt they would send me away.

At a certain amount, maybe I’d have my own home office with people managing my estate, but that’s only because it’d be fun. I’d probably also take a chunk and be an angel investor. That’d also be fun and you’d meet some interesting people.
 
tulak said:
I don’t see it being a problem. If I don’t care about tax efficiency and managing my estate, I’m sure I could go to Fidelity, Schwab, or Vanguard and buy more of the index funds I already own. I doubt they would send me away.

At a certain amount, maybe I’d have my own home office with people managing my estate, but that’s only because it’d be fun. I’d probably also take a chunk and be an angel investor. That’d also be fun and you’d meet some interesting people.
Click to expand...
Correct. I think most of the regulars here could EASILY manage an investment portfolio 10x or 20x bigger than their present one.

Problem is: it seems a lot of folks who win lotteries are NOT savvy investors to begin with. So you have a train wreck waiting to happen...
 
If I won the Powerball, I would need a corporate lawyer to help me set up the proper legal structure to take the money anonymously, a trusts and estates lawyer to help me provide for family and charity beneficiaries and to put a few layers of difficulty between me and someone seeking to get some of the money, and a tax accountant to help me minimize taxes while doing so. I wouldn't need an investment advisor.
 
The thing that drives me nuts in this example is, I assume they took the cash option instead of the multi year payout (annuity) only to be sold an annuity by the FA. :facepalm:
 
You must log in or register to reply here.

Similar threads

2HOTinPHX
Using Reverse Mortgages in a responsible retirement Income Plan discussion.
2
Murf2
M
A
Investing for My Parents
Montecfo
M
G
How to Invest 401k Funds When Guaranteed Income Sources Pays for Most of Our Expenses
2
mystang52
M
D
Sandwiched Dad hoping to retire by 2027 (or sooner!)
stephenson
S
target2019
PINK etf - Investing in the Future of Health Care with Mike Taylor
target2019
target2019

Latest posts

Back
Top Bottom