There is a quote often ill-attributed to accomplished 20th-century bank robber Willie Sutton attempting to explain his motivations. “Why did I rob banks? Because that’s where the money is.”
Sutton, who was known for his talent at executing robberies in disguises and who robbed about 100 banks from the late 1920s to his final arrest in 1952, claims never to have said those words to an ambitious reporter. Still, they underscore a simple concept.
One of the easiest places to find money in the Capital Region is in the retirement ranks of its petrochemical plants. That might account for why several financial scandals have rocked the homes of these hard-working Baton Rougeans.
The Stanford Financial Group’s alleged $8 billion Ponzi scheme is no exception. When area advisers talk about Stanford, they inevitably bring up Sutton. The two schemes, they say, had the same premise of following the money.
Hundreds of ExxonMobil retirees fell victim to what is arguably the largest financial scandal to affect the region. They sought out—or were found by—trusting advisers who sold them the Stanford International Bank Certificate of Deposit—which promised higher-than-normal returns but ultimately was only worth the paper on which it was printed.
Many of these victims have been at the forefront of lobbying Congress, speaking to reporters and organizing unrest against numerous government regulatory bodies that might or might not have been too lax in catching Stanford companies in the act.
Except for their livelihood, they’re not much different from other retirees. ExxonMobil retirees aren’t any less informed, or more careless, with their investments. It’s simply a numbers game of people and cash.
The numbers: More than 10,000 residents in the Capital Region are employed by the industry sector, according to the Greater Baton Rouge Industry Alliance. Of that number, about 3,000—not including contractors—are employed by ExxonMobil.
The cash: Most of the retirees who spoke with Business Report had an average portfolio of $1.5 million before their Stanford accounts were seized on Feb. 17.
When you put the people and the cash together, that’s a lot of money in a concentrated area.
For financial advisers, there’s an appeal to the industry retiree—a lump-sum defined benefit plan [a modern pension plan], a 401[k] with significant amounts of stock and a tight-knit community that trusts one another for recommendations and broker reviews. Like most middle-class retirees, they only have a basic knowledge of investing. That’s why they hire advisers.
Some Baton Rouge investment firms declined to speak on the record because of industry regulations. Their expertise was used as background information on the practice of investing and why ExxonMobil retirees were a profitable niche market. ExxonMobil representatives also declined to comment.
Cold, hard cash
There’s no point in seeking out an investment client if they don’t have any money in their 401[k] to invest. Several industries, like petrochemical, have retirement packages that are more than adequate. And some of the companies still have a package that includes a modified version of a pension plan.
That’s why Olivia “Sue” Warnock went to work at ExxonMobil in the 1970s.
Warnock studied English in college and was prepared to become a teacher. She says that market already was flooded, and she had to look elsewhere. She settled on ExxonMobil because of the pay and benefits.
“I needed something I could count on,” she says. “They provided me a comfortable retirement.” When Warnock retired in April 2007, she left ExxonMobil with roughly three-quarters of a million dollars.
That makes industry retirees appealing, says Joe Pfeiffer, a New Orleans-based attorney who has represented numerous ExxonMobil employees who have been scammed by financial planners—including the 2001 case against Securities America representative Joe McPadden, who squandered millions of ExxonMobil retirees’ investments by utilizing high-fee, high-risk products.
“They have a defined benefit pension like no one has anymore,” Pfeiffer says.
ExxonMobil workers also have a 401[k] to supplement the more traditional pension plan. When they retire, they can take the 401[k] portfolio, leaving the defined benefits with Exxon—continuing to receive a monthly stipend on that pension—or they can cash it all out and roll it over into a new set of investments with an adviser. Most people, according to those who manage some Exxon investors’ portfolios, take the lump sum.
The amount of money coming out of ExxonMobil every year that is ready and available for investing is almost astounding.
“They have 300 people [that are] supposed to retire from that complex in the next month,” Warnock says. “Do you know how much money that is for people to suck up and invest? Millions, right there for the taking.”
A lot of those retirees seek the recommendations of their friends and co-workers. Larry Maier, an ExxonMobil retiree who invested with UBS, says they turn to each other for advice.
“There’s a lot of comparing people,” he says, “asking each other for input on advisers.”
Back to school
ExxonMobil retirees don’t enter the marketplace completely unprepared.
The company begins educating its employees very early on, retirees say. The process typically starts when the employee turns 50, with seminars about what benefits they will be receiving, how they need to plan and how they shouldn’t put all of their money in one place.
Jerry Goss, the managing director of investments for Goss Wealth Management of Wells Fargo Advisors, was one of the financial-services providers contracted by ExxonMobil in the 1980s when he was with A.G. Edwards. Goss talked about current investments, Individual Retirement Account rollovers and protecting investments in the long term.
ExxonMobil has gone through several companies and procedures for educating their retirees, but has settled with a firm that doesn’t sell any financial products—which could be a conflict of interest.
Pfeiffer says the current education program isn’t enough.
“They are an oil company, not a retirement company,” he says. “They don’t have a really robust education program.” Then again, he adds, it isn’t really their responsibility.
Jim Chisholm, another ExxonMobil retiree who invested with Stanford, says he wishes the company had better prepared them. Rather than providing advice on what they needed to do, Chisholm says, “They more or less talk about what you have, how you can roll it out of Exxon. It’s nothing like what you need, and it’s not really Exxon’s [job].”
Despite the warnings, Pfeiffer says, some of the retirees end up investing with an adviser—or company—who doesn’t turn out to be legitimate.
“They say, ‘Look, you can afford to retire and you can take 8% to 10% of the portfolio out. What are you working for? I can get you the same amount as your salary, and you don’t have to go to work,’” he says. Then the investor thinks to themselves, “‘I just figure that this is how rich people do it. We were idiots our whole lives.’”
Or they hear, like those retirees who invested with Stanford, the reason they’re receiving a better return is because the company has a low overhead and because they don’t have to pay some taxes because the servicing institution is outside the U.S.
And to make matters worse, investors with Stanford, like with other financial scandals in the past, signed paperwork authorizing the purchase of the high-risk CDs and verifying they were accredited or sophisticated investors [having a net worth of more than $1 million or an annual income of $250,000 or more], even if they weren’t. There’s no education process that prepares investors for that. Area advisers liken the process to understanding the forms that patients sign when they go to the doctor, or when homebuyers close on the deal.
A better choice
Most investors, whether they worked for ExxonMobil or another company in another field, aren’t sure what to do with their money upon leaving the workforce. It can be a difficult road to travel without sound guidance.
Goss says there’s a simple solution: talk to a lot of people, and ask them to debunk each other’s theories.
“They need to visit with three or four firms [at least] and do some due diligence on the particular adviser—their references, credentials and the firm they’re with,” he says. “They need to do more than just plop down a nest egg with some guy in a fancy office.”
Most Stanford investors will tell you they talked to several advisers. They went to the luncheons at Juban’s and to the seminars. They read the fliers and asked for references. As the Stanford scandal has shown, sometimes that’s not enough.
Pfeiffer says a big part of the problem is that it is difficult to track where the problems are. The Financial Industry Regulatory Authority is supposed to be a source for digging up dirt on financial advisers, but he says that even serious complaints “fall off the FINRA Web site after two years.” Not to mention that, “FINRA is an organization set up by the brokerage firms. It’s like the insurance companies being on the panel for insurance complaints after [Hurricane] Katrina,” he says.
Even worse, the Securities & Exchange Commission, which is responsible for keeping the industry in order, doesn’t advise investors of potential red flags for fear of causing panic around the company and damaging their business. And as investors start to discover how dangerous investing really can be, they tend to want to stuff their cash in their mattress. That might seem less risky than handing over their life savings to someone whose company sponsors the symphony and volunteers for organizations that help at-risk children.
But sometimes it can be hard to discern who is telling the truth and who is not. Warnock says she feels duped. “To me, no reputable honest adviser would have put a conservative investor in those [CDs],” she says. “I feel like we were hung out to dry.”
