Stock Market Fall is Cracking Seniors' Nest Eggs

Loretta Tofani INQUIRER STAFF WRITER

Last fall, Ernie Petko became worried that his 88-year-old mother's nest egg would run out and she no longer would be able to afford her Center City apartment - and two nurses a day caring for her.

So Petko, 56, cashed in his mother's $152,280 in certificates of deposits and bonds, which were paying 5 percent, and asked a bank to invest the money in mutual funds. Now, she is $50,000 poorer, and Petko is much closer to the moment he was trying to avoid: moving his mother, who requires a feeding tube, from her home to a subsidized nursing home.

"I was trying to extend the money," Petko said. His mother pays $1,300 a month for her Center City apartment and $3,600 a month for private nurses.

"I feel physically and emotionally ill," said Petko, who retired from managing fabric and furniture stores. "I can't bring myself to tell my mother."

As the stock market has gone from bull to bear, lawyers have reported a sharp increase in elderly investors and their children expressing alarm about losing large sums of money in stocks.

Often, the money was critical for the care of those who cannot live independently.

Because of their diminished savings, their plans for care in their old age have gone awry. They fear they will have to move out of assisted-living residences or personal-care homes, or stop employing the private nurses who allow them to live at home.

They worry that they will have to turn to Medicaid for help and enter nursing homes, which already have waiting lists.

"There's been a substantial increase in calls, about a 200 percent to 300 percent increase in the last two weeks," said Debra Speyer, a Philadelphia lawyer who specializes in elder law and fraud issues.

Most of the time, the people - or their children with powers-of-attorney - made riskier investments than were prudent.

"You should maintain a balanced portfolio appropriate for you at your particular stage in life," said Richard Levan, a partner at the Philadelphia law firm of Drinker, Biddle and Reath and a former Securities and Exchange Commission lawyer who represents brokers. "At age 75, a much smaller proportion of money should be in stock than at 45."

Many retired people allege that brokers inappropriately invested their funds in volatile "tech" stocks. In some cases, complaints and suits can be filed against the brokers, said Speyer, who also is vice chair of the Philadelphia Bar Association's elder law committee.

Speyer reviews the complaints that come to her and sometimes concludes that the broker should be held accountable.

For example, Speyer is filing a complaint with the National Association of Securities Dealers on behalf of a 62-year-old Whitehall woman with power of attorney for her 92-year-old mother and her 90-year-old aunt. Early last year the younger woman, who did not want to be identified, gave a broker $120,000 of her aunt's money and $90,000 of her mother's money.

The mother and aunt live in a personal-care home. The woman hoped, she said, that she could "get them a little more money" because once they run out, the personal-care home will evict them.

She asked the broker to put the money in a balanced portfolio, the woman said in an interview. Instead, as the woman learned when she received their first monthly statements, the broker had invested the money mostly in tech stocks.

She was shocked when she saw the names of their new investments: the Internet Series, High Tech Series, Tele-Global Series, Telecom and Bandwidth Series, Software Series, Wireless Series, Semi-Conductor Series, and Health Care Series.

She also learned that, in just one month, her mother and aunt had lost thousands of dollars.

At the end of February, when the woman finally withdrew their money, they had 40 percent less - about $84,000 had evaporated, Speyer said.

"I have been up every night since 3 o'clock worrying about this," the woman said. "My mother has dementia. If I have to move her out of there and put her in a strange place, I can't think of what will happen to her. I can't take care of them."

"The broker gave these two elderly women an inappropriate portfolio," Speyer said. "Here, they saved all their lives so they could be taken care of in their old age. . . . These people are not millionaires; they have very little money and they want to hold onto it."

Ernie Petko's widowed mother, Isabel, was a social worker. In 1994, she sold the North Arlington, N.J., home she had shared with her husband, and put the money in certificates of deposit, U.S. Treasury bills, and bonds.

While the stock market soared, she was content to earn rates of interest that rarely surpassed 6 percent. She cashed in her certificates of deposit as she needed them for her living expenses.

Two years ago, after suffering numerous strokes, her bills skyrocketed. Having difficulty swallowing, she became dependent on a feeding tube and nurses to care for her. Some of her nursing care was not reimbursed.

Ernie, her only child, said he had promised his mother he would not move her to a nursing home. But last year he began worrying that within two years her nest egg would be gone and he wouldn't have a choice.

Hoping to make it last longer, he visited his mother's bank, Beneficial Bank at 2037 S. Broad St., and spoke to an investment specialist. Petko had never invested in the stock market.

"I trusted the bank," Petko recalled. "They even let me take out my mother's CDs without charging me a penalty."

The investment specialist who sold him the mutual funds did not return a reporter's phone calls.

Paul Driscoll, Beneficial's executive vice president, said: "I'm sure all the downsides were pointed out. There was the possibility of it losing value. That would have been pointed out - the number-one thing pointed out."

Petko did sign an account application with boxes checked by the investment specialist, indicating Petko's preferences. For investment objective, "growth," was checked. Risk tolerance - "above average;" and time horizon - "6 to 10 years."

For investment experience, Petko had indicated "limited."

In December, Petko received his first statement from Putnam Investments. It showed that his mother's money was invested in four funds - the Global Growth Fund, the Investors Fund, the Vista Fund, and the Voyager Fund. But this is what caught Petko's attention: He had lost more than $16,000 from his initial investment of $152,280.

"I wanted to cry," Petko said.

He said he knew the market could go down, "but I thought it would be up and down and up."

He called the investment specialist, asking that the losses be returned. The specialist relayed Petko's request to Conseco Securities Inc., and a senior compliance specialist, Lawrence Kurtz, replied in a Feb. 5 letter to Petko that the losses could not be reimbursed.

Noting the check marks on Petko's account application, Kurtz wrote that the "investments chosen represent an appropriate diversity of solid mutual funds."

Petko began hoping that the stock market would climb again, enabling him to retrieve his mother's money. But since January, the monthly statements informed him that the investments were worth less and less.

"I didn't know it was going to get lower and lower" or Petko said he probably would have taken the money out sooner.

Like so many investors who had come to expect only up markets, "he got stuck," said a Salomon Smith Barney investment adviser Petko recently consulted.

"A lot of people got stuck."