Protect Yourself: A Primer on Financial Fraud and Abuse Against Seniors

As we move further into the 21st century, senior and elder financial fraud continues to become one of the most prevalent and lucrative criminal enterprises in the United States.  Nearly 40 million people are age 65 or older in the United States today.  In the next forty years, that number is estimated to more than double. 

According to a 2010 Investor Protection Trust (IPT) Elder Fraud Survey, one out of every five citizens over the age of 65 already have been victimized by financial fraud.[i]  The IPT survey also found that more than one out of every three seniors are currently being pitched by “people (who) are calling me or mailing me asking for money, lotteries, and other schemes,” and 19 percent of adult children believe their parents are being pressured in such a fashion.  A 2008 Duke University medical study additionally revealed that more than a third (35 percent) of Americans over the age of 71 have mild cognitive impairment (MCI) or Alzheimer’s disease that make them particularly susceptible to investment scams and other financial abuse.[ii] 

The Financial Industry Regulatory Authority (“FINRA”), the securities industry’s regulatory and enforcement body, defines financial elder abuse as the “misuse of an older adult’s money or belongings by a relative or person in a position of trust.”[iii]  Financial elder abuse can also take the form of investments that may appear suitable on their face, i.e. a bond fund, but are in fact inappropriate for seniors due to excessive risks.  Unlike younger investors, seniors have few, if any, working years remaining to replace lost principal.  For every dollar lost, elderly victims may also suffer untold stress resulting in adverse health issues.  The emotional pain of being scammed can also be magnified for seniors who keep silent about losing money.  Many seniors do not report suspected fraud for fear that their family will place them in an institution if they appear unfit to manage their finances and lives.

Stockbrokers and financial professionals make less money from clients who are risk-averse investors looking to live off interest income from safe investments.  Instead, they are incentivized to recommend investments that produce higher commissions and fees for themselves and their employers.  Seniors are often easy targets because they are less likely to notice or question suspicious fees or activity in their investment accounts.  If you are a senior investor or retiree, here are a few tips to protect yourself from financial fraud and abuse:

  1. Don’t fall for investments that promise “guaranteed” or exceptionally high returns.  If an investment seems too good to be true, it probably is.  Moreover, relatively few products are “guaranteed.” 
  2. Avoid investments that are “risk free.”  Few investments are without risk.  As a general rule, the greater the potential return from an investment, the greater your risk of losing money.
  3. Don’t be rushed into an investment by high pressure sales tactics.  Always take the time to evaluate and understand an investment before handing over your money.  Always be leery of “once in a lifetime” opportunities, or investments that are only available “for a limited time.”  Take the time to discuss proposals with family, accountants, etc.
  4. Be wary of professional designations.  Some financial professionals use professional designations to market themselves as “retirement specialists” or “senior specialists.”  While some professional designations require rigorous study or extensive education or experience, some may be relatively easy to attain, and may even be available to individuals with no particular experience.  Thoroughly evaluate the background of anyone with whom you intend to do business before investing with them.
  5. Avoid “free lunch” financial seminars for seniors.  These seminars are often well-rehearsed, carefully scripted sales presentations designed to prey upon seniors’ fears; instead of recommending suitable investments, these seminars often pitch investments with high commissions, fees and surrender charges, which may be unsuitable for seniors.
  6. Make sure that you clearly communicate your investment objectives to your financial professional.  Don’t let them steer you into investments that are not in line with your investment objectives.  Seniors are typically retirees living on fixed income and need conservative low risk, income-supplementing investments.  Don’t let your financial advisor talk you into taking on more risk for slightly higher returns.  Perhaps most importantly, closely review any document you are asked to sign, especially those with “investment objectives” and/or “risk tolerance” information about you.
  7. Never sign a blank or incomplete document.  Always take the time to review documents that a financial professional asks you to sign, and make sure the document is filled out in its entirety. 
  8. Never give cash to a financial or securities professional.  When making an investment, use a method of payment that can easily be tracked to prevent theft or misappropriation of funds.
  9. Get a second opinion.  If you have questions about an investment and the financial professional recommending it to you fails to fully or satisfactorily explain the investment, consult your attorney, accountant, a family member, or a different financial professional.  Your money is too valuable to put into someone else’s hands without fully understanding what will happen to it. 
  10. Ask questions.  Financial professionals often use highly specialized language or jargon with which you may be unfamiliar.  If you don’t understand something, ask the financial professional to explain it clearly. 
  11. Don’t Remain Silent.  If you suspect financial fraud or abuse, immediately contact an attorney, accountant or anyone who can assist you and evaluate your accounts or the circumstances regarding your suspicions. 
  12. Ask for help.  If you suffer from mild cognitive impairment or a diminished capacity due to Alzheimer’s or other health conditions, have a family member or someone else you trust assist you in making financial decisions or evaluating your investments and accounts. 
  13. Avoid unregulated investments.  Some investments like private placements and hedge funds are investments that are unregulated by the Securities and Exchange Commission.  These investments are high risk, speculative investments suitable only for sophisticated, accredited investors able and willing to bear the high risks associated with investing in these products.  Most seniors should avoid such investments at all costs.
  14. Avoid complex financial products.  Generally, the more complex an investment is, the higher the risk and fees.  If you don’t fully comprehend how an investment works, do not invest in it.  In many cases, financial professionals also don’t understand how the complex investments they recommend react under varying market conditions. 
  15. Don’t be afraid to contact your state financial regulators.  Every state has a state agency devoted to protecting the its citizens from financial fraud and abuse.  You can find a list of state legislators here.  Contact your state’s financial regulator if you suspect you’ve been targeted as part of a financial scam.

The following are the most basic questions that seniors, and investors in general, should ask when facing the decision to make a new investment or turn over their money to a financial professional:

  1. Can you explain the investment to me without using industry terms or jargon?
  2. What risks are associated with the investment/program?
  3.  How much does the investment cost in terms of commissions and fees?
  4.  Are there additional or ongoing fees?
  5.  Are there surrender charges associated with this investment?
  6.  What happens if I decide to sell or cash in my investment?
  7.  Why is this investment suitable for me?
  8.  How easy is it to sell or convert the investment to cash if I need money quickly?
  9.  If the speaker can’t or won’t answer your questions in writing or to your satisfaction, the investment may not be right for you.

Financial fraud and abuse is a growing threat against seniors.  Ask questions and stay informed about your investments.  Seek help if you believe you are being targeted or have been a victim of financial fraud or abuse.

For more information, visit www.elderfinancialfraud.com.


[i] For more information about the 2010 Investor Protection Trust (IPT) Elder Fraud Survey, go to www.investorprotection.org/learn/research/?fa=eiffeSurvey.
[ii]  See Prevalence of Cognitive Impairment without Dementia in the United States, Ann Intern Med. 2008 March 18; 148(6): 427–434. Read the abstract at www.ncbi.nlm.nih.gov/pmc/articles/PMC2670458/.
[iii]  See Forbes.com, February 19, 2010, Financial Elder Abuse Rampant in Economic Downturn.
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