Top 10 Ways to Stop Elder Financial Scams

CFP Board releases 32-page guide on ways to spot, and prevent, fraud against seniors

Noting the increasing incidents of elder financial abuse, the Certified Financial Planner Board of Standards released Wednesday a free guide to help seniors protect themselves from fraud.

The 32-page guide, written by CFP Board consumer advocate Eleanor Blayney, describes 10 common situations in which older Americans are vulnerable to financial abuse and provides warning signs of such abuse and advice for guarding against it.

Kevin Keller, CEO of CFP Board, said in releasing the guide that “CFP Board remains deeply concerned about incidents of consumers—particularly senior citizens—being misled by those claiming to be trusted financial professionals.” The guide to financial self-defense, he said, “will help protect seniors from abusive, fraudulent and unethical financial practices.”

CFP Board says the guide draws upon CFP Board’s 2012 Senior Financial Exploitation Survey of more than 2,600 CFPs, which found that more than half had personally worked with an older client who had been subject to unfair, deceptive or abusive financial practices in the delivery of financial advice or the sale of financial products. Participating CFP professionals estimated that only 5% of senior citizens actually report such financial abuse.

Last August, the CFP Board urged the Consumer Financial Protection Bureau (CFPB) to thwart the rising use of misleading, fraudulent and deceptive designations and certifications—which it says are mostly used to exploit seniors—by creating a ratings system for such credentials.

Read on to see the top 10 red flags the CFP Board urges seniors to watch out for.

1. Look beyond the letters after a financial advisor’s name.

Don’t assume you’re in the right hands just because an advisor says he is “accredited,”  “chartered” or “registered.” After all, those terms don’t mean that the advisor is regulated, just like a doctor or attorney. The fact is that there are more than 170 known designations and certifications used by financial professionals, with many of them little more than marketing tools, with no real education needed—much less an exam—to “earn” them. Unless those letters stand for a designation that has rigorous and enforceable standards of ethics and practice, the trust you place in the advisor could be on shaky ground.

Cut through the designation confusion and simply ask the financial professional if he is required to provide advice under the “fiduciary standard of care.”

2. If you don’t understand what’s being sold, don’t buy it.

Financial products are similar to prescriptions: good for what ails you, but there’s so much fine print! Being able to read it all is one thing; understanding it quite another. Do not be embarrassed if you do not understand a financial product that is recommended to you. Get a second opinion just as you would for a serious medical diagnosis. Ask a competent financial professional, and make sure this professional will give you his or her opinion as a “fiduciary”—in your best interest, not theirs.

3. There’s no such thing as a free lunch.

After receiving an engraved invitation to dine at a nice local restaurant, at no cost to you, you say, “Why not? I’d love to get out a bit, and enjoy a good meal. What’s the harm?”

There may be none whatsoever, but there also may be a lot. Often these free meals aren’t free at all, but are hard-sell investment product promotions. If you decide to attend these events, be prepared for what follows the meal. Don’t confuse a sales pitch for good advice or education. In addition, be extremely skeptical of recommendations made from a podium.

4. Just because a so-called expert recommends it doesn’t mean it is right for you.

Never buy anything over the phone or provide any personal or financial information to a phone caller or seminar provider. If you are pressured in any way to answer questions or accept any offer, simply say “No thanks.” “Goodbye” also works quite well. Remember this cardinal rule of financial planning as upheld and enforced by CFP Board: any recommendation of a financial product, strategy or investment without a complete understanding of an individual’s needs, goals and circumstances should not be accepted.

5. If it sounds too good to be true, it’s probably not legitimate or safe.

Be extremely skeptical of the words “guarantee” or “safe” when applied to any investment. Regulated brokers and advisors are precluded from making such claims. Get a written description of the benefits AND risks of any investment product you are considering.

6. Don’t confuse familiarity with trust.

Be aware that there are unscrupulous people who target ethnic, religious or age groups to defraud or mislead them. Called “affinity fraud,” these people prey upon our human tendency to feel more comfortable with others who are in some way like us. Conduct a background check on any advisor you are considering working with, no matter how personable or highly recommended. Check into his business practices, his disciplinary history and how long he has been in business.

 7. The final sign-off should always be yours.

A broker used forged forms to transfer $720,000 held by a 70 year-old blind man to the broker’s own personal accounts, and then sent falsified investment statements.

Regardless of the paperwork burden, do not leave blanks that can be filled in without your knowledge or consent. If you need help with paperwork, you can ask your financial professional or a trusted friend or family member to fill in the information, but ALWAYS with the proviso that the form comes back to you for a final review and sign-off.

8. Make sure the money others are making isn’t yours. A man, age 72, lost more than $120,000 in a scheme set up by a real estate agent, supposedly to invest in timeshare properties for high returns. He invested $50,000 initially and started to receive sizable income checks, so he invested $70,000 more. The checks then stopped and his investment was lost. Ask questions about the business model underlying the investment: will it be profitable and over what time period? If the answers are vague, or if you do not completely understand how the investment works, do not invest, no matter how enticing the promised “returns.” Make sure you receive regular statements from independent third parties on the performance of the investment.

9. Get the full story: who gains the most—you or the financial professional?

A widow held several annuities. Each time one of the annuities was about to run out of surrender charges, she was advised to replace the annuity with another, effectively re-starting the surrender period with much higher costs.

Whenever a transaction is proposed, make sure you know what it will cost you. Ask if you will pay to sell the investment at a later point. Ask about loads, commissions, internal expenses or other transaction costs. The existence of charges is not an abuse, but not being told about them is.

10. You have rights as a homeowner. Know them.

An elderly woman asked her housekeeper to drive her to the bank to apply for a reverse mortgage. The banker was the housekeeper’s boyfriend. The woman signed papers not for a reverse mortgage but for a conventional mortgage. The woman lost her home.

Unfortunately, there are con artists out there who know, even better than homeowners themselves, the value of the houses and how to manipulate the reverse mortgage process to get that value into their own pockets.

Make sure that any reverse mortgage you consider is backed by the Federal Housing Administration (FHA).

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