From the September 2008 issue of Investment Advisor • Subscribe!

September 1, 2008

The Fraud Squad

You can help protect older clients and family from con artists

Carrying an unloaded tommy gun, Willie Sutton held up more than a hundred banks in the first half of the 20th century. When someone asked him why he robbed banks, his memorable answer? "That's where the money is." As America ages, more and more money will be held by older people, who usually don't have a vault or security guards to protect them. In place of stick-ups at the local bank branch, I foresee an increase in fraud directed at these folks.

The trend is already strong enough to alarm regulators. If you're not familiar with the difficulty older people have in fighting scams and rip-offs, imagine yourself out of the mainstream of change in your 70s or 80s, trying to navigate a complex world without being preyed on, stolen from, and robbed of your sense of security and safety.

As advisors, you are likely to have more opportunities to help clients protect their parents from fraud, or to assist others who have already been burned to overcome their feelings of anger and distrust. Here are some examples.

Q: A widow in her mid-70s was referred to me after having had a bad experience with her previous advisor, who persuaded her to cash in a $300,000 life policy and buy a fee-heavy variable annuity with a lengthy surrender period. She's distraught and blames herself for having "lost" the inheritance she planned to leave her children. I may be able to help her get out of the unsuitable VA, but so far she has resisted giving me a go-ahead. Is there a way to speed up the process of gaining her trust?

A: Your client appears to have been "frozen" by the financial and emotional trauma she has been through. Instead of trying to hurry her into a decision, I would take time to empathize with her feelings of betrayal by someone she trusted, compounded by her sense of shame that she allowed herself to be duped. Reassure her that she is neither "stupid" (a term I wager she is applying to herself) nor unduly gullible for having followed her previous advisor's recommendation.

Then I would ask her what she needs to know in order to be confident that you're not just like him. Answer all her questions patiently, and offer to put her in touch with other clients in her age range whom you have helped. If you've ever rescued a client from a similar misguided move, see if that client would be willing to talk with her.

To help gain her trust, you might also educate her about ways to defend herself against other kinds of financial traps. AARP has an excellent library of articles about various frauds, from car crashes to the Nigerian money scam (www.aarp.org/money/wise_consumer/scams). You might direct her to this site, or print out some of the articles for her if she's not computer-savvy. Take care, though, not to go overboard with scare stories that might just serve to convince her that the world is consipiring against her.

As your client sees the time and energy you are willing to put in and the lengths to which you will go in order to assist her, I believe she will gradually "unfreeze" and let you rectify her misguided decision.

Q: The worse the economy gets, the more ads I see for debt consolidation schemes, easy-credit loans, and tax avoidance "secrets"--most of which are nothing but scams to get people to part with their money. It bothers me that no one is doing anything to stop these fraudsters. I hardly have time to stay in touch with my own prospects, let alone help folks who aren't likely to ever use my services, but I keep asking myself if our advisor community doesn't have some responsibility to educate people. What do you think?

A: An excellent question! I agree, this is an awful state of affairs, and few people are better suited than a principled investment advisor to ameliorate it.

You might join forces with one or two trusted colleagues (perhaps an insurance professional and a lender) to put together a free seminar on "How to protect yourself from fraud." See if you can enlist the support of a local civic organization to sponsor and advertise the event. If it's difficult to justify spending time on a pro bono activity, consider the benefits of being associated with this kind of leadership effort. Some prospective clients are bound to hear of it and think well of your willingness to help.

On an individual level, you might consider enlisting in a free phone consultation program that Kiplinger's and NAPFA offer periodically. During the two or three days that the program runs, consumers can call in and ask an advisor about financial matters. One of the recent volunteers for this phone bank was Donald Lord, a financial planner with the Family Firm in Bethesda, Maryland, who told me he found it both fulfilling and jarring. What jarred him was discovering how willing the callers were to trust someone on the other end of the phone whom they had never met or even heard of, and how open they were in divulging personal financial information.

This tells me that many people desperately want help with their finances, and also that they need enough information to be sure their advisors are trustworthy. You and your colleagues are in an ideal position to accomplish both.

Q: Two years ago, I made a serious error in judgment that cost me the account of a high-net-worth client. I've apologized several times, but the client believes I deliberately made a wrong decision out of self-interest. I have always tried to maintain my integrity, and am ashamed to think he considers me to be dishonest. Even if there's no hope of winning back his business, what can I do (if anything) to restore my good name with him?

A: Since some time has elapsed, you might write to this former client explaining how deeply it continues to bother you that your mistake harmed him, and asking if there is anything you can do to make amends. Assure him that your purpose in writing is to help him understand that you were in no way motivated by personal interest.

Although you may not receive a response to this letter, it could still have an impact. Another way to help this man perceive you in a better light would be to undertake a pro bono project in some social, religious, or civic arena where the two of you cross paths.

Good luck in winning back your ex-client's respect. But whether or not you succeed, try to forgive yourself for your past mistakes, and move on to serve your current and future clients with conscientiousness and care.

Q: My office is next to that of a planner who's been in the business since 1980, and sometimes I can't help overhearing him on the phone. The other day he barked to one of our firm's retiree clients, "Get over it. Trust me, the market will come back." I agree with his confidence, but brushing off questions with "Trust me," makes us sound like scammers in a boiler room. How can I tactfully suggest that a little TLC might help a nervous client trust us more?

A: Your colleague reminds me of a grizzled old warrior who has survived so many firefights that he can't remember what it's like to be scared. I think it would be helpful to make him more aware of the view from where the client stands, so he can build a bridge from there to where he himself sits with all his years of experience.

This might start with an informal chat (perhaps over lunch or coffee) where you ask him how he's feeling about his clients these days--especially the ones who are freaking out about a bear market. If he complains about their anxiety, their ignorance of previous recoveries, and their irritating demands for some kind of action, try to listen compassionately. You might then offer an anecdote about someone (possibly yourself) who became too burned out to respond to clients with the necessary patience and empathy. Tell him that clients reacted to this unsympathetic attitude with resentment and distrust, as if suspecting that they were being sold a bill of goods.

You might even ask your colleague if he has any fear that the market won't turn around this time. His curt "Get over it!" could be a defense against his own anxieties. I hope you can get him to understand and soften his attitude a bit--for his clients' sake, and for your firm's as well.

Q: A longtime client of mine is worried about his mother, the widow of a career Army officer. Ever since she contributed to an organization purporting to help military veterans, she's been bombarded by phone solicitations from questionable charities. My client tells me that she has always tended to give to others instead of looking after herself, and finds it hard to say no to anyone who needs help. He wants to know how to protect her, but is reluctant to hurt her pride. How should I handle this?

A: If she doesn't live too far away, invite her to get together with you and your client to discuss his concerns about her financial well-being. In this conference, I would explore how secure she feels about her money. If she voices any fear of seeing it dwindle or losing it to scammers, you can coach her about common types of consumer fraud (see the AARP link I mentioned earlier), especially in the area of charitable giving. Then brainstorm with her and her son about ways she can protect herself, without giving up the freedom to donate to causes she knows are trustworthy.

A fairly simple solution would be to get Caller ID and let an answering machine pick up calls from any sources she doesn't recognize. (You might position this as a way that generous souls like her can avoid putting themselves in the awkward position of having to say no.) Signing up with the federal Do Not Call registry won't stop solicitations from registered charities, but she could insist that each unwanted organization put her on their own Do Not Call list. A third option would be to clear all potential donations through her son, your client. This would give her a polite "out" with solicitors ("I have to talk to my son first"), but having to ask for his approval might feel too humiliating to her.

Helping people learn to guard themselves from rip-offs is an exceptionally hard and frustrating task. Ideally, you'll be part of a team of trusted family members and experts who can help educate these folks while working to defend their financial and emotional interests. If older people are increasingly targeted by crooks--whether by phone, on the Internet, or door-to-door--we can expect to see more regulations (and hopefully more prosecutions) to protect against fraud. In the meantime, it may be up to you to educate, support, and protect clients and their parents who happen to be "where the money is."


Olivia Mellan, a speaker, coach, and business consultant, is the author with Sherry Christie of The Advisor's Guide to Money Psychology, available through the Investment Advisor Bookstore at www.investmentadvisor.com. She also offers money psychology teleclasses for financial advisors and for the general public. E-mail Olivia at moneyharmony@cs.com.

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