Like millions of other retired Americans, Beverly Getts and her cousin Vivian Roberts have been distressed to see their retirement income fall along with interest rates. But more distressing still for the two widows is the fact that their principal is also shrinking.
Now they fear that they received bad advice -- and made the wrong decision -- three years ago when they chose an investment that promised a high return.
Their story is a cautionary tale for people who receive retirement money in a lump sum with no clue about how best to invest it. The two women, who live in Bridgeport, Conn., now face a painful choice familiar to many other novice investors: Should they hold on, hoping the investment will bounce back? Or should they pull out what is left of their money, pay another commission and hope they do better the second time around?
"This is all the money we have," Mrs. Getts said. "We really need to feel secure about it. We can't just watch it sink."
Mrs. Roberts, 64, retired in 1989 from Rexham Inc., a maker of packaging materials, where she worked as an assembler for 22 years. Her only retirement money was the $65,000 she got in a lump sum.
Mrs. Getts, 65, retired the same year as head of the payroll department for the accessory equipment division of the General Electric Co., where she had worked for 43 years. She left with a $700-a-month pension in addition to $60,000 from her savings plan.
The two women went to Society for Savings, a bank in nearby Trumbull, for help in investing the money. Society for Savings is one of many banks that sell mutual funds in their lobbies, working with a brokerage firm that registers the brokers.
In this case, the brokerage was the Invest Financial Corp., a unit of the Kemper Corp. that is based in Tampa, Fla.
Michael Garofalo, a broker who no longer works for Invest, recommended that both women put all their money in the Pilgrim Short-Term Preferred Fund, Mrs. Getts said. They did, paying a 3.5 percent commission.
At the time, the fund was investing in high-yield preferred stock. "It was designed for sophisticated investors who understand the risks of investing in high-yield securities," said Robert Grunburg, president of the Pilgrim Group, a family of mutual funds based in Los Angeles. "It is the analogue of a junk bond fund."
But Mrs. Getts says "they never explained to me that it was risky. They said it was the ideal thing to take for our financial situation." Did the broker suggest putting their lifetime savings into more than one investment for diversification? "Never," she said.
Harold Evensky, a financial planner in Coral Gables, Fla., who is paid on a fee-for-service basis rather than on commission, says the fund was a poor choice for the widows. "It was an extraordinarily volatile and risky investment," Mr. Evensky said.
Mr. Evensky said the fund was "heavily, heavily marketed" when it was introduced by Pilgrim in 1987 as an investment with "incredible income and little risk." Brokers who do not do their own research into investments may simply repeat this marketing pitch, he suggested.
In 1990, the fund changed its strategy, becoming what Mr. Grunburg calls a "global currency" fund that invests in "short-term bonds denominated in foreign currencies with a view to getting higher interest rates." It is now called the Pilgrim Short-Term Multi-Market Fund.
The two women say they were not told of the change. Meanwhile, the bank switched brokerage firms and closed its Trumbull branch. Mrs. Getts, who began calling Pilgrim's 800 number to learn what she could, said she was advised to "just hang in there" because " 'if you sell now, you could be selling at the fund's lowest level.' "
By now, Mrs. Roberts' income from the fund has dropped to $361 a month, from $593, and her principal is down to about $54,000 from the original $65,000. Even though Mrs. Getts has been reinvesting her earnings, she has a bit less than she started out with.
Mr. Grunburg and Peter Mulligan, executive vice president at the Society for Savings in its Hartford headquarters, agreed that the Pilgrim fund would not be appropriate for all of an investor's money. "If these are the only assets they had, it wouldn't be easy to justify," Mr. Grunburg said of the widows.
Mr. Mulligan said there are two issues: "Did the rep provide them with the correct advice?" And did he "provide them with all the information that they would need to make an informed decision about their investment?"
They say they still don't know what to do. "This is causing us untold agonies," Mrs. Getts said. "I'd love to let other people know what they're getting into when they don't know anything about investing."
Filing a complaint
You don't get a guarantee when you buy securities. But you can expect the salesperson to fairly represent the product and the risks involved. And you can expect the investment he recommends to be suitable to your financial situation.
Before you invest, you can check out a broker by calling the National Association of Securities Dealers at (800) 289-9999 to .. find out whether any disciplinary actions have been taken by the group, said James Spellman, an NASD spokesman.
If you have already invested and have a complaint, write to the brokerage's compliance department, which is obligated to respond. If you remain unsatisfied, send a copy of your letter and the response to the NASD and the Securities and Exchange Commission, both based in Washington. You also have a right to arbitration.
The NASD and SEC offer brochures explaining how to proceed with arbitration.