The Securities and Exchange Commission has filed a cease-and-desist order against noted investment advisor and radio personality Ray Lucia, alleging a series of misleading statements in retirement-strategy seminars plugging Lucia's "buckets of money" strategy.
The SEC's order instituting proceedings (OIP) details what the agency describes as "materially misleading" presentations to prospective investors that amount to fraudulent activities under the Investment Advisers Act, charges that Lucia strenuously denies.
The SEC's order alleges that Lucia failed to perform the analysis of his strategy in the context of historical market conditions, or backtesting, that he claimed in his seminars, books and other public statements.
Where Lucia misstepped, according to the SEC, was in using a hypothetical rate of 3% inflation in the scenarios for the buckets of money, or BOM, strategy that inflated the returns, while the actual, higher rate was applied to the historical evaluations of stocks and bonds, making those portfolios seem like poorer investments by contrast.
"When historically accurate inflation rates are used in the alleged 1966 and 1973 backtests, an investor using the BOM strategy would have exhausted his or her assets by 1986 (if retiring in 1966) or by 1989 (if retiring in 1973), which are far worse outcomes than are presented by respondents' slideshow," the SEC order alleges.
Additionally, the SEC cited Lucia for failing to deduct advisory fees from his projections for retirement savings, an omission that "artificially inflated the returns produced by the BOM strategy."
The SEC also alleged that the spreadsheets Lucia used in his retirement seminars did not reallocate the hypothetical portfolio after the holdings invested in bonds or real estate investment trusts were exhausted, a condition the agency charges would have resulted in diminished returns owing to exposure to the stock market over a period of roughly two decades.
Lucia, for his part, defended his practice and disputed the SEC's charges, noting that the presentation in question is no longer included in his retirement seminars and that the complaint does not describe any material harm caused to investors. Additionally, he called the 3% inflation rate that he used as a basis for his retirement scenarios "universally accepted."
"This is not a criminal case. Importantly, the OIP pleads for me to cease making a statement I've not made in almost two years," Lucia said in a video posted on his website.
"Although I disagree with their claim, in the spirit of cooperation, I removed the slides that are in question from my seminar presentation when the SEC first took issue with them back in 2010."
The order cites Lucia himself as well as Raymond J. Lucia Companies, which had done business under the name RJL Wealth Management, registered as an investment advisor with the SEC from September 2002 to December 2011.
According to the SEC, RJL had nearly 4,700 clients and roughly $300 million in assets under management until the firm began transferring those funds in May 2010.
Lucia has also been registered as representatives of First Allied Securities and Lucia Financial, both entities registered with FINRA as broker-dealers.
The germ of Lucia's buckets of money strategy traces to a 1998 article in Financial Planning that evaluated the long-term performance of $100,000 portfolios, as well as research findings that the stock market has historically outperformed the rate of inflation.
The buckets of money program amounts to a retirement strategy that sees investors place their savings into three sets of holdings that span from moderate risk and low yields to higher risk and greater growth potential.
Lucia continues to promote the strategy, though he notes that in the retirement seminars at issue in the SEC complaint he did not endorse any specific security or fee-based advisor program. And he is adamant about his innocence.
"I want to assure you that I intend to vigorously defend this absolutely meritless lawsuit and will seek an early trial," he said.
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