A Warning about Financial Exploitation

This is an updated version of a column I wrote several years ago. My intent is to provide some examples of how consumers, particularly seniors, can be financially exploited. I’ll start with some examples. Because I don’t have room in this column to adequately explain ways for you to defend yourself, I'll finish with a link to a helpful brochure.

Marianne met her financial advisor at the health club.  He was a nice guy with a big smile, easy to get to know. Everybody liked him.  He lived in an expensive home with a charming family and drove an expensive car.  He was obviously very successful, so when he asked Mary if she would like to invest with him, she didn’t hesitate.  She wrote him a check for $100,000 and soon thereafter began receiving statements from him indicating that her money had been invested.  Two years later, Mary discovers that the statements were fraudulent and that the advisor used the funds to support his extravagant lifestyle.

When Johnny’s mother died, he visited the local funeral home to make arrangements for her funeral.  A financial advisor met him there with paperwork to move his mom’s investments to the bank he represents.  Later, Johnny discovered that the advisor not only moved the investments but sold them without his knowledge.

Betty and some friends were among the many seniors who purchased a variable annuity from a financial advisor who was consistently selling variable annuities to seniors with the promise of no loss of the funds invested and a high return.  She was told about all the advantages, including an income stream she can’t outlive, guaranteed death benefits, and a high yield.  The financial advisor did not tell her or the other seniors about the steep surrender charges and limited options for distribution.

George, an elderly widower, asked his banker for a better rate on his CD.  He walked out with an annuity that could not be surrendered for more than 10 years without a steep sales charge.  George had no idea that his new investment worked very differently than his old one.

Lisa, a recent widow, met with her husband’s financial advisor after she collected a $350,000 death benefit.  The advisor convinced her to invest the money in a variable life insurance policy.  When she needed the money, it was tied up in the insurance policy.

These stories are based on actual occurrences of investor fraud. To learn how to defend yourself, I recommend that you download or order a copy of the CFP Board’s“Consumer Guide to Financial Self-Defense.”  The guide will alert you to the “red flags” that mark various behaviors indicating fraudulent or unethical practices.  At the end of the guide, there is a common-sense list of ways to prevent financial abuse.  The list includes actions for you to take such as “Trust but verify,” “Make sure you receive regular statements from independent third-parties,” “Don’t make checks for the purchase of an investment payable to the individual advisor,” “Understand how the advisor earns her pay,” and “Designate a trusted friend or relative to handle your investments in case something happens to you.” You can find the guide at https://www.cfp.net/ by clicking on “Brochures and Publications” at the bottom of the webpage.


Kenneth B. Petersen CFP®, EA, MBA, AIFA® is an investment advisor 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, CA93940 or email them to ken@montereypw.com.