Financial elder abuse increases in a down economy
"The amount of money stolen from seniors has risen sharply in recent years," said CFPB head Richard Corday in a prepared statement. The bureau is seeking public input about the best way to identify legitimate financial advisers and how effective and easy-to-understand financial counseling can be for seniors, among other issues.
While financial scams have long been in existence, the rate at which they occur increases when the economy falters. The more desperate people feel about their financial lives, the more willing they may be to plunge into a "can't miss" investment or one that promises a quick solution to their money problems.
Two studies over the past three years have drawn attention to financial elder abuse. A 2011 study by MetLife found that Americans over the age of 60 were swindled out of an estimated $2.9 billion in 2010, a 12 percent increase from the $2.6 billion estimated in 2008. The Investor Protection Trust (IPT) 2010 "Elder Investor Fraud Survey" revealed that one out of every five citizens over the age of 65 had been victimized by financial fraud.
Targeting seniors is not an accident. Scammers understand what research has proven: the ability to make effective financial decisions declines as people age. According to the Center for Retirement Research at Boston College, "between ages 71 and 79, one-fifth of individuals are impaired but that rises to half of those between ages 80 and 89." Regardless of how smart your aging parent is and how capable he or she has been at handling personal finances, you still need to be on the look out for financial scams.
According to the Center for Retirement Research, investments may be fraudulent if they:
-- Look too good to be true.
-- Offer a very high or "guaranteed" return at "no risk" to the investor.
-- Require an urgent response or cash payment.
-- Charge a steep upfront fee in return for making more money on an unspecified date.
-- Suggest recipients do not tell family members or friends about the offer.
-- Lure prospective investors with a "free lunch."
-- Come unsolicited over the Internet, are of unknown origin or come from overseas.
-- Instill fear that a failure to act would be very costly.
-- Cannot be questioned, inspected or checked out further.
-- Are so complex that they are difficult or impossible to understand.
When you visit or talk to your older relatives and friends, ask if they've received any of the above-mentioned solicitations or if anyone has urged them "not to tell their family" about a great opportunity. Beware of solicitors operating in or near a nursing home, community center or veteran's facility, and make sure that you warn against would-be financial advisers who claim to be "senior/retirement specialists" and who are not registered with the proper authorities.
The CFPB has noted that part of its effort will be aimed at how seniors can best determine the legitimacy of the credentials of financial planners and advisers. One question that will help you vet potential advisers or brokers is to ask them to identify the organizations that license or supervise them. Brokers are regulated by FINRA; investment advisers by either the SEC or a state securities regulator; insurance agents by the state insurance commission in states in which they do business; CFP professionals by the CFP Board. Use these organizations' websites to check the adviser's background and any disciplinary history.
I encourage you to download and read CFP Board's Consumer Guide to Financial Self-Defense at http://www.cfp.net/learn/FinancialSelfDefense/default.asp. The guide shows you how to arm yourself with information and spot fraudulent red flags, in addition to providing specific self-defense moves to guard against elder investment fraud and financial exploitation.
(Jill Schlesinger, CFP, is the Editor-at-Large for http://www.CBSMoneyWatch.com. She covers the economy, markets, investing or anything else with a dollar sign on her podcast and blog, Jill on Money, as well as on television and radio. She welcomes comments and questions at email@example.com.)