By JUDD MATSUNAGA, Esq.
Would you and your parents know the difference between an accredited retirement adviser and an accredited estate planner? How about a retired income specialist, a certified senior advisor, or a retirement crisis planner? Confusing? You bet.
None of this is to say that you and your parents should steer clear of financial advisers. Quite the contrary. Since most seniors do not have the time or expertise to safely invest their savings, and since many seniors will experience a decline in cognitive thinking, finding the right investment adviser is often necessary, but not easy.
The purpose of this article is to provide you with some basic understanding of how financial scam artists work so that you can avoid fraud and protect your hard-earned money. Learning how to invest safely can mean a huge difference in your retirement years.
According to a 2013 report from the federal Consumer Financial Protection Bureau, financial advisers are using more than 50 “senior” titles or designations to suggest they have expertise helping older Americans with their investments. In reality, the credentials just mislead potential customers.
“Consumers risk paying for an adviser they believe has a breadth of experience, but who, in reality, simply paid a website for multiple designations,” the report says.
“Some of these titles require in-depth training, while others aren’t much more than window dressing,” says Hubert “Skip” Humphrey III, assistant director for the Office of Older Americans.
In short, many “senior specialists” or “retirement advisers” may not be qualified to help you or your parents manage the family’s money but may be quite eager to use their lofty titles as marketing ploys to lure clients. The trouble is, many of these similar-sounding titles have few, if any, requirements — and oversight of the designations is scattershot.
The bureau’s findings are particularly troubling because study after study has shown that older Americans are attractive targets for investment fraud. People 60 and older make up 15% of the population, but account for an estimated 30 % of investment fraud victims, according to AARP.
A study conducted by the Financial Industry Regulatory Authority, the largest independent regulator for U.S. securities firms, found that older consumers are more likely to rely on the advice of a pro who uses an alphabet-soup senior designation, like certified senior advisor (CSA) or chartered senior financial planner (CSFP).
“It’s known as “relationship sales tactics,” says Jack Waymire, founder of Paladin Registry, a free research site that rates financial advisers. “The financial adviser will be your new best friend.”
Scam artists prey on seniors who are polite to others and have difficulty saying “no,” or feel indebted to someone who is “nice,” or attempts to develop a false bond of friendship.
Waymire estimates that 75% of people calling themselves financial advisers “are sales reps who are paid commissions for selling their products.” He recommends instead using pros who make their money by charging fees for their service, whether it’s hourly, fixed or a percentage of the investor’s assets.
“Don’t select an adviser based purely on his or her credentials,” Waymire says. “Although some of these designations are legitimate, many others are not.” According to Waymire’s research, at least 35% of credentials used by financial consultants are fake, “designed to trick seniors into believing advisers are more knowledgeable than they really are.”
The California State Bar website warns, “Be wary of those who tout themselves as specialists offering insurance and financial advice to seniors. Some simply use senior-related titles and designations to pose as experts. They may not have had any relevant training or experience at all. That fancy title may just be a marketing ploy to get your business.”
Insurance brokers and agents are prohibited from using a “senior designation” to mislead consumers. They can no longer use any senior-related certification, credential or professional designation unless it meets certain criteria and has been approved by the California Insurance Commissioner. (IC § 787.1)
The U.S. Securities and Exchange Commission (SEC) publishes a pamphlet, “A Guide for Seniors: Protect Yourself from Investment Fraud.” The following are sections of the Guide:
The education, experience, and other requirements for receiving and maintaining a “senior” designation vary greatly. In some cases, a financial professional may need to study and pass several rigorous exams — after working in a designated field for several years — to receive a particular designation. In other cases, it may be relatively easy in terms of time and effort to receive a “senior” designation, even for an individual with no relevant experience.
If you want to find out more about a particular professional designation, check out the “Understanding Investment Professional Designations” page on FINRA’s website. The page provides the education and experience requirements for many professional designations.
In addition, you can find out whether the granting organization for a particular designation requires continuing education, offers a public disciplinary or investor complaint process, or provides a way to check the status of a financial professional.
Keep in mind that neither FINRA nor the SEC endorses any professional designation. Even after doing some research, it may not be clear to you whether a professional designation represents legitimate expertise, a marketing tool, or something in between. That’s one reason you should always look beyond a financial professional’s designation and determine whether he or she can provide the type of financial services or product you need.
We encourage you to thoroughly evaluate the background of anyone with whom you intend to do business — before you hand over your hard-earned cash. You also should ask questions — that’s the best advice we can give you about how to invest wisely. We see too many investors who might have avoided trouble and losses if they had asked basic questions from the start.
Finally, here are some red flag warnings of fraud:
- If it sounds too good to be true, it is. Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you’ll get substantially more could be highly risky. And that means you might lose money.
- “Guaranteed returns” aren’t. Every investment carries some degree of risk, and the level of risk typically correlates with the return you can expect to receive. Low risk generally means low yields, and high yields typically involve high risk. If your money is perfectly safe, you’ll most likely get a low return. High returns represent potential rewards for folks who are willing and financially able to take big risks. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or “can’t miss.” Don’t believe it.
- Beauty isn’t everything. Don’t be fooled by a pretty website — they are remarkably easy to create.
- Pressure to send money RIGHT NOW. Scam artists often tell their victims that this is a once-in-a-lifetime offer, and it will be gone tomorrow. But resist the pressure to invest quickly, and take the time you need to investigate before sending money. If it is that good an opportunity, it will wait.
Con artists are experts at gaining your confidence. So be certain to treat all unsolicited investment opportunities with extreme caution. Whether you hear about the opportunity through an email, phone call, or a fax, be certain to check out both the person and firm making the offer and the investment they are pushing.
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Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.