Question: My Mom, a widow in her 70s, tells me she receives occasional calls and invitations to lunch from financial advisors. I am concerned they might not have her best interests at heart. What can I tell her?
Answer: The Certified Financial Planner Board of Standards conducted a “Senior Financial Exploitation Survey” in 2012 . The Board reported that more than half of the 2,600 Certified Financial Planner (CFP®) professionals surveyed had worked with a senior who had been subject to unfair, deceptive, or abusive financial practices. The survey also found that only about 5% of senior victims reported the abuse.
The Financial Industry Regulatory Authority (FINRA) reports there are four problems most frequently reported by investors filing complaints with them:
Misrepresentation occurs when an advisor or broker makes untrue representations or omits material facts relating to an investment. To avoid this problem, you should ask the advisor or broker to send you information, including a prospectus, that will back up what he told you.
2. Aggressive Cold-Calling
Cold-calling is a technique brokers often use that involves making unsolicited or unwanted phone calls using high-pressure, persistent tactics. To avoid cold calls, tell the caller to place you on the firm’s “do-not-call” list and politely hang up. Don’t fall for sales pitches that make exaggerated claims or specific price or return predictions (e.g., “your money will double in a year” or “earn 15% per year”). Remember that if it sounds too good to be true, it probably is.
Some cold-callers are skilled at engaging you in conversation and becoming your telephone buddy. As persuasive as they can be, don’t let them in the door. They are not your buddy; all they want is your money.
Unsuitability describes an investment made by a broker that is inconsistent with your investment objectives, financial situation, and/or risk profile.
To make sure you don’t end up with an unsuitable investment, know your objectives and read and understand the terms of any agreement that you are asked to sign. Understand and agree to what you purchase. If you can’t explain it, don’t buy it.
4. Unauthorized Trading
Unauthorized trading occurs when a sale or purchase of securities is made without your prior knowledge or authorization.
To help avoid this problem, make sure your broker understands your instructions. Document your conversations. Read and retain your monthly statements as soon as you receive them and question anything you don’t understand or didn’t authorize. If you see an unauthorized trade, take immediate action, don’t wait. Contact the firm’s branch manager and send a registered letter to the firm’s compliance department refusing the purchase.
The CFP Board has published a guidebook, “Financial Self-Defense For Seniors,” that lists a series of ten red flags seniors should be aware of. Each flag identifies a common situation where an elder is vulnerable to financial abuse; describes the warning signs of such abuse; shares a real-life situation where an older American was taken advantage of; and provides advice to elders and their families to protect against this abuse. You can download this guidebook in PDF format or request a copy from the CFP Board’s website. To find it, type “CFP board financial self-defense for seniors” in the search box on your web browser.
Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment manager and Principal of Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investing, taxes, retirement, or estate planning. Send your questions to: Ken Petersen, 2340 Garden Road Suite 202, Monterey, CA 93940 or email them to firstname.lastname@example.org.