Earlier this year, the U.S. Securities and Exchange Commission brought cases against several Midwestern investment professionals for scamming senior clients out of millions of dollars. In some cases, the clients were suffering from dementia and those charged had been their trusted investment advisors for years.
According to Joel Levin, director of the SEC’s Chicago regional office, it’s estimated that financial exploitation of seniors may cost as much as $3 billion every year. “It’s a big problem,” he said.
“Seniors generally have greater accumulated savings than other people – they’ve had more years to accumulate those savings – so they have more at stake and it makes them more likely to be victims of different kinds of investment scams,” Levin said. “But in addition, in many instances where you see this sort of victimization, the senior investors may be suffering from mental or physical impairments that make it more of a challenge for them to make wise investment decisions and to monitor the investments that they have.”
Levin says that while older investors can be particularly vulnerable to this kind of financial exploitation, there are ways they can protect themselves. He shares 10 tips for avoiding financial fraud, including a recommendation to not go on autopilot with your investments – a tip for everyone, he says, not just seniors.
“Whatever you invest in, you really need to monitor it,” he said. “That doesn’t necessarily mean looking at the stock market every day or even every week. But when you invest, you can’t put anything on autopilot. You need to continue to be vigilant, to look at your statements, and if there are transfers or withdrawals or things that you don’t understand, you need to follow up and find out what’s going on.”
10 TIPS FOR SENIOR INVESTORS
1. If it sounds too good to be true, it probably is
Watch out for “phantom riches.” Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you’ll receive substantially more could be highly risky – and that means you might lose money. Be careful of claims that an investment will make “incredible gains,” is a “breakout stock pick” or has “huge upside and almost no risk!” Claims like these are hallmarks of extreme risk or outright fraud.
2. “Guaranteed” returns – CAUTION!
Every investment carries some degree of risk, which is reflected in the rate of return you can expect to receive. If your money is perfectly safe, you’ll most likely get a low return. High returns entail high risks, possibly including a total loss on the investments. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” They try to plant an image in your head of what your life will be like when you are rich. Don’t believe it.
3. Avoid unsolicited offers
Be especially careful if you receive an unsolicited pitch to invest in a company or see it praised online but can’t find current financial information about it from independent sources. It could be a “pump and dump” scheme in which promoters try to boost the price of a stock with false or misleading statements and then, once the stock price has been pumped up, fraudsters seek to profit by selling their own holdings of the stock, dumping shares into the market.
4. Avoid pressure to invest quickly
Scam artists often tell their victims that “this is a once-in-a lifetime offer” and “it will be gone tomorrow.” Resist the pressure to invest quickly and take the time that you need to investigate before sending money.
5. Research the sales person
Spend some time checking out the person touting an investment before you invest – even if you already know the person socially. Always find out whether the security salespeople who contact you are licensed to sell securities in your state and whether they or their firms have had run-ins with regulators or other investors. You can check out the disciplinary history of brokers and advisers for free using the SEC’s and FINRA’s online databases. Your state securities regulator (link is external) may have additional information.
6. Research the investment
Unsolicited emails, message board postings, and company news releases should never be used as the sole basis for your investment decisions. Understand a company’s business and its products or services before investing. Look for the company’s financial statements on the SEC’s EDGAR filing system. You can also check out many investments by searching EDGAR.
7. Ask questions
Fraudsters are counting on you not to investigate before you invest. Fend them off by doing your own digging. It’s not enough to ask for more information or references – fraudsters have no incentive to set you straight. Take the time to do your own independent research. For more information see Ask Questions.
8. Foreign or “off shore” investments – CAUTION!
Be wary if someone recommends foreign or “off-shore” investments. If something goes wrong, it’s harder to find out what happened and to locate money sent abroad.
9. “Everyone is buying it” – CAUTION!
Watch out for pitches that stress how “everyone is investing in this, so you should too.” Think about whether you are interested in the product. If a sales presentation focuses on how many others have bought the product, this could be a red flag.
10. Do not put investments on “auto pilot”
It is important to monitor any investment to see how it is performing, whether it remains a good investment for you and whether there are any unusual fees or transfers. Spend time reading the periodic statements that you receive and do not be shy about asking an investment professional questions when you do not understand something. If you believe you have been defrauded or that some misconduct has occurred, report it immediately to the SEC, State regulatory authorities or law enforcement.
HELFPUL RESOURCES FOR SENIOR INVESTORS:
‘Money Diaries’ Aims to Help Women Take Control of Their Finances
As We Live Longer, Can We Also Live Well?
Columnist: Getting Older Doesn’t Have to Mean Getting Grumpier