Lies About Tax-Exempt Bonds

Brokers of tax-exempt bonds habitually lie or mislead retail investors, said Ric Edelman of Edelman Financial Services. For a long time I’ve warned most individual investors against buying individual tax-exempt bonds. These are thin markets, so you can’t determine the value as readily as you can for major stocks. There are mark-ups that aren’t disclosed and other disadvantages. Edelman spelled out these and other traps in a recent talk to a Securities & Exchange Commission forum.

• Brokers frequently don’t tell retail investors they can negotiate for yield and spreads on muni bonds.
• Brokers also often don’t let a consumer know that a better price may be available from a competitor.
• Sometimes brokers tell a retail investor that the value of the bond is guaranteed, leading the consumer to think he or she can sell the bond at any time for the original purchase price.

“At end of day retail investors are being lied to,” Edelman said.