Would you know whether your financial adviser were the next Bernie Madoff? Odds are you wouldn't. Swindlers don't exactly wear name tags as they fleece investors.
"We have witnessed a growing number of older Americans fall victim to financial swindles," says Don Blandin, CEO of the Investor Protection Trusts, which is cosponsoring a one-day hotline for older people.
See also: Financial help for elderly parents.
"Millions are in danger of being exploited," and one in five people over the age of 65 already has been exploited, according to Blandin's group.
Any time a broker tries to sell you something, you need to vet the product carefully and watch out for telltale signs that something is not right. Here are some red flags:
- "You can't get access to your money." If your broker-adviser tells you there's a "lock-up" period and you can't get your money out on short notice, stay away from the product. "When presented with an investment proposal, seek the guidance of a third party who has no vested interest in your decision — be very cautious with any investment that limits your ability to access the funds for unexpected personal or medical emergencies," advises Louis Straney, an expert on security fraud and author of the Investor's Guide to Loss Recovery.
- "You'd better act now." Some advisers may try to rope you in by pushing the quick sell. They use phrases like "if you act now," or "we have limited space available." Any investment should be carefully considered over time. You shouldn't feel obligated just because you know the broker or if he has bought you a steak dinner.
And ignore a fancy office or bank lobby location. That doesn't mean your investment is any safer.
"Office location is of little importance," adds Straney. "In fact, cosmetic issues are a distraction to the tasks at hand. The critical issues are the training, supervision and motivation of the adviser."
Straney says you should ask about the adviser's background and qualifications, whether investors have access to key managers, and the breadth of products and services the broker is offering.
"If every recommendation is plastered with the company's logo," Straney says, "look elsewhere."
- Come-ons tied to the headlines. Many swindles are tied to the news. Is the price of gold or oil soaring? Does the idea of buying cheap properties appeal to you? According to the North American Securities Administrators Association (NASAA), top scams over the past year involved distressed real estate, energy and precious metals investments, promissory notes and securitized life settlement contracts. That last vehicle involves buying a "piece" of somebody else's life insurance policy.
"Con artists follow the news and seek ways to exploit the headlines to the advantage while leaving investors holding an empty bag," said David Massey, NASAA president and North Carolina deputy securities administrator, in a statement.
- Targeting of a person with cognitive impairment. Many swindlers target people whose mental sharpness may not be what it once was. Fraud merchants also go after the most vulnerable — women between the ages of 80 and 89 who live alone and need help with activities of daily life, according to the MetLife Institute. The cost to this group is nearly $3 billion annually.
The flimflam artists know that most older investors buy on trust alone. So there's one simple rule for you to follow: If you can't fully understand how an investment works and all of its downsides, then don't invest in it.
- Shady marketing. Check out telemarketing, direct mail and "affinity" (social group) pitches. Skepticism is one of the best forms of caution. Keep talking to your loved ones, friends and neighbors. The best form of protection is vigilance.
Key resources to help you detect and combat fraud:
- Investor Protection Trust. It offers a helpful video on investment fraud among older people. Also see the IPT elder investment fraud program.
- FINRA. This securities industry regulator has a host of resources that provide investor alerts and broker/adviser background checks.
- Financial Planning Association. This group can provide basic financial advice and help you locate a certified financial planner near you.
Also of interest: How to check if your broker's company is legit. >>
John F. Wasik is a personal finance columnist for Reuters and the author of The Cul-de-Sac Syndrome (www.johnwasik.com) and 12 other books.