Preventing Senior Fraud

In honor of the recent World Elder Abuse Awareness Day and the fact that senior fraud is practically an epidemic, here’s a sobering fact: It's estimated that fraud costs Americans over $50 billion a year and those 65 and older are often the targets. The reason is as true today as it was for legendary bank robber Willie Sutton: criminals go "where the money is"—and that means targeting older Americans who are nearing or already in retirement. Additionally, the bad folks have also latched to something that many have long suspected: as we age, we tend to make more emotional decisions. Researchers at the Stanford Center on Longevity, in collaboration with the Financial Industry Regulatory Authority (FINRA) and AARP, recently released a study that found older investors are more susceptible to fraud than younger ones, due to the emotional states — both positive (excited) or negative (angry)—they were experiencing.

According Doug Shadel, one of the authors of this new research, "Whether the con artist tries to get you caught up in the excitement of potential riches or angry at the thought of past and future losses, the research shows their central tactic is the same and just as effective…Cons are skilled at getting their victims in to a heightened emotional state where you suspend rational thinking and willingly hand over your hard earned money to a crook.”

To protect yourself or an older friend or family member, try not to act when you feel yourself in a heightened emotional state. If you are on the other side of a high-pressure sales tactic like, “Act Now”, “Time is running out!” or “This is a onetime offer”, run the other way. The same goes for any pitch where you are being asked to pay upfront fees, told that won a contest that you didn’t enter or receive unsolicited mail, emails, or phone calls for services that you were not seeking. Practice saying “No” or “I'm not interested. Thank you.”

The preceding approaches may seem obvious, but even some seemingly legitimate investment ideas may be unnecessary and expensive or at worst, fraudulent. According to the Boston University Center for Retirement Research, here are some red flags for shady investment pitches:

• Look too good to be true.
• Offer a very high or “guaranteed” return at “no risk” to the investor.
• Suggest recipients do not tell family members or friends about the offer.
• Lure prospective investors with a “free lunch.”
• Cannot be questioned, inspected or checked out further.
• Are so complex that they are difficult or impossible to understand.

In order to protect yourself or your relatives, the Consumer Financial Protection Bureau, FINRA and the SEC offer these tips:

1. Sign up for the Do Not Call Registry at https://www.donotcall.gov.
2. Shred junk mail, old bills, bank statements and any other documents that have personal identifying information.
3. Don’t give out personal information over the phone unless you originated the call and you know with whom you are talking. Particularly safeguard your social security number.
4. Be rude. At the slightest hint of pressure, feel free to hang up the phone or close the door.
5. Never sign something that you don’t understand. Have a trusted and unbiased professional assist you when enter contracts or signing legal documents.
6. If you hire someone for personal assistance services, in home care services, etc. ensure that they have been properly screened with criminal background checks completed.

Family members should encourage their older relatives to discuss any unsolicited offers before writing a check. If you suspect fraud or a questionable practice, call FINRA's toll-free Securities Helpline for Seniors (844-57-HELPS) or go to http://www.finra.org/investors/finra-securities-helpline-seniors.

Obama Endorses Fiduciary Standard for Retirement Accounts

The White House wants to change the way brokers provide advice on retirement accounts. President Obama endorsed a Department of Labor proposal, which would require brokers to act in a customer’s best interest—the so-called FIDUCIARY duty—when working with retirement investors. The rule change is intended to crack down on “backdoor payments and hidden fees,” which cost retirement savers $8 - $17 billion a year, according to Jason Furman, chairman of Obama’s Council of Economic Advisers. As you might expect, the financial services industry is not happy about the potential shift. The Securities Industry and Financial Markets Association says "This proposal would lead to a number of negative consequences for individual investors."

I know what you're thinking: How could a rule that puts my interests first, be bad? Well, according to the SEC, the idea that the industry is plagued by conflicts of interest, "has nowhere been proven," and would effectively overhaul the entire regulatory regime, ignoring "eight decades of securities laws and regulations.  The real kicker, however, is that this is not a Commission rulemaking." This is a not-so-subtle shot at the Department of Labor, which in issuing this rule change, is stomping on SEC territory. Nothing like an inter-departmental catfight!

In fact, SEC Commissioner Daniel Gallagher thinks that it is "curious" that the DOL didn't consult with the SEC, especially given that the SEC maintains comprehensive oversight authority with respect to the investment advisers and broker-dealers who would be impacted by the change. Gallagher underscores that the DOL ignores SEC rules, which already address underlying conflicts of interest. But here's the nut of the problem, according to the SEC:  there is no evidence that the industry is plagued by conflicts of interest and the new rules could limit investor access to qualified investment advice and investment products.

The proposal will likely be put out for public comment for several months, so for those who need a refresher on investment professionals and their designations, here are some terms to consider:

Investment advisor: If the advisor is registered as an IA, he or she owes you a fiduciary duty, which is a fancy way of saying that she must put your needs first. Investment professionals who aren't fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.

CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.

CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.

Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements.

If you are interested in finding a financial advisor, here are some resources:

• FPA Planner search
• Find a CFP 
• NAPFA Advisor