Invest in Proprietary funds and kiss your retirement goodbye
In 2015, Mark Allen Hanrahan, then the Managing Director of Acquisitions and Distributions with Principal Real Estate Investors, and responsible for almost $10 billion in 401(k) real estate investment funds, kidnapped a Hispanic youth at gunpoint and forced him to find crack cocaine for him. Under a threat of death, the young hispanic managed to have a friend contact the Des Moines police, then lured Hanrahan to a Walgreen’s parking lot under the guise of buying drugs, where the police arrested him. The next morning Hanrahan was released, and later charged with a simple misdemeanor. O.J. Simpson committed a similar felony crime and was sentenced to 33 years in prison!
I don’t know how many drug addicts hold high level directorship positions with Principal, but until he got caught in 2015, Hanrahan was a top executive with that company. He bragged in social media that he was responsible for billions of dollars in retirement funds.
In 2005, Wells Fargo Bank purchased a 33 story office building in downtown San Francisco for approximately $150 million. A few months later, Wells Fargo sold that same building to Principal Life for the Principal U.S. Property Separate Account for $370 million, “earning” Wells Fargo a net profit of $220 million within a few months! Mark Hanrahan brokered the deal on behalf of hundreds of thousands of 401(k) investors! During the same time period and later, Hanrahan brokered several more questionable commercial real estate deals, costing investors possibly billions of dollars in losses later.
Between 2008 and 2010, while at least one Principal 401(k) fund was locked, and hundreds of thousands of investors were unable to remove or transfer their retirement assets, Hanrahan played a significant role in possibly stealing billions of dollars from the account.
If you have an employer-sponsored 401(k) retirement plan with Principal life Insurance Company, you own worthless paper. Principal owns your money, and they will be reluctant to return it. If you complete your required due diligence on the internet, you will find multiple complaints from Principal investors upset at how difficult it was for them to withdraw their funds. When I asked for my retirement money and my wife’s money in later 2008, when we both turned 65, we were told we could not withdraw the money because we did not own any money with Principal.. Principal owned our money!! Most of your investments include the “purchase” of proprietary investments owned by Principal. No, you did not purchase them… Principal did. Confused yet?
How proprietary fund “investing” works…
Principal buys stock shares and other investments from the open market or privately from private sellers. They then “sell” those same investments to themselves with your money. This is no typo.. Principal buys investments from themselves and purchases them privately for the account of their own clients. But the Variable Annuity your employer signed when he hired Principal as your service provider clearly states that Principal “owns” ALL plan assets! Yes, you read that correctly. Principal owns ALL plan assets.
Until a few years ago, under ERISA and the Iowa state regulations, selling proprietary investments… that is, selling investments the service provider owns… to their own clients, was illegal for obvious reasons. A wee bit of conflict of interest intermixed with a generous helping of fraudulent conduct. Both the states and the feds recognized this issue, so they wrote into the regulations that it was illegal.
Then one day a few years ago, Principal’s lawyers wrote a nice letter to the Department of Labor, promising to be good guys if the DOL would simply let them sell proprietary funds to their own clients. Believing Principal had the best interest of their investors in mind, the DOL said, sure, good ahead, BUT it might be illegal if you do something illegal! So don’t do anything illegal.
Of course, Principal “promised” to be good guys, and the concept of “investing” YOUR money in proprietary funds, that is, funds owned by the seller, was born….. the main source of funds for the Principal Target Date funds were proprietary… in fact, just about all mutual funds and money market funds were invested in proprietary investments if you had Principal Life Insurance Company as a service provider.
Another example involves AIG when they defaulted years ago. Principal held shares of AIG stock when it was announced AIG would not survive. Anticipating the share value would crash, Principal wrote another nice letter to the DOL, asking permission to “sell” their proprietary AIG shares to your 401(k) plan. Only this time Principal added a stipulation. They did NOT want you to know about this purchase (or rather sale), so they asked the DOL to not make this exception letter public for 120 days (I wonder why!) Once again, the DOL said yes. With the advent of the new DOL fiduciary standard, most brokers are beginning to divest themselves of these types of investments for their clients, and for good reason. Their fiduciary risks are too great.
If you are comfortable with doing business with a company like Principal, then by all means do so. They will love you for that. And like the millions of retirees that had placed their confidence in Principal back in 2008, you may even be lucky and get back fifty cents on every dollar you invest in Principal’s proprietary funds. There are hundreds of ways a company like Principal can make themselves look inviting. Principal now has a “new” CEO and President, and a “new” logo. I am sure they continue to receive an annual award for being one of the most liked company in the world, as well as the “greenest.”
Principal gives away millions of dollars to well deserved charities, as well as to well deserved Congressmen in Washington, to make sure they have a smooth path to any governmental agency for which they need insider access. But when you eventually retire, after losing one-half of your retirement to fiduciary misfits like Principal, you WILL regret that decision.