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Investor Education

Avoiding Fraud Against Seniors

How seniors can protect themselves from fraud

Two basic strategies can help seniors and their families lessen the chances of becoming a victim of investment fraud. The first strategy is practicing self-defense by following seven simple steps, listed below. The second strategy involves support and guidance from family, friends, caregivers, and investment professionals. Taken together, they go a long way toward helping seniors avoid the devastating effects of financial fraud.

Strategy #1: Practice self-defense

Don't be a courtesy victim. You may be from a generation that was taught to be courteous at all times to phone callers, as well as people who visit you at home. Con artists will not hesitate to exploit the good manners of a potential victim. When a stranger asks for your money, you should proceed with the utmost caution. You are under absolutely no obligation to stay on the phone with a stranger or allow them in your home. In these circumstances, it is not impolite to explain that you are not interested and hang up the phone or ask a stranger to leave your premises.

Verify, then trust. Trusting strangers is a mistake that many seniors make when it comes to their personal finances. Don’t feel pressured by someone who asks you to make an immediate decision, giving you no chance to check out the salesperson, firm, and the investment opportunity itself. Instead, get written information about the investment, review it carefully, and make sure that you understand all the risks involved before you part with your hard-earned money.

A favorite tactic of telemarketing con artists is to develop false bonds of friendship. They know that some seniors are eager to have someone to talk to on the phone, even if the caller is a complete stranger. When a telemarketer phones, do not be swayed by offers of unrelated advice and assistance—they are merely efforts to develop a sense of friendship and even dependency for one purpose only: to win your confidence and take your money.

Also keep in mind that almost all investment products must be registered or qualify for an exemption from registration. The Division of Securities (608-266-2139) can tell you if the investment and the salesperson is registered. You can also use FINRA BrokerCheck to verify that an individual or firm is registered to sell investment products.

Always stay in charge of your money. A stockbroker, financial planner or telemarketing con artist who wants your money will be more than happy to assure you that he or she can handle everything, thereby relieving you of the need to watch over and protect your nest egg. Beware of any financial professional who suggests putting your money into something you don't understand or who urges that you leave everything in their hands. Constant vigilance is a necessary part of being an investor. If you understand little about the world of investments, take the time to educate yourself or involve a family member or a professional, such as your attorney or accountant, before trusting a stranger who wants access to your money.

Never judge a person's integrity by how they sound. Seniors who fall prey to a con artist often explain that the swindler sounded like such a nice person. Successful con artists sound professional and can make even the flimsiest investment deals sound as safe as putting money in the bank. They combine these sales pitches with extremely polite manners, knowing that many people equate good manners with personal integrity. No matter how caring or well-meaning a person sounds, it has no bearing on the soundness of an investment opportunity.

Watch out for salespeople who prey on your fears. Con artists can exploit your fears, such as your worry that you might outlive your savings or that you might lose everything as the result of a costly hospitalization. Playing on these fears, swindlers often pitch schemes that sound like they will protect you from running out of money. Remember, though, that fear, like greed, can cloud people's good judgment and lead them into a terrible investment.

Don’t let embarrassment or fear keep you from reporting fraud or abuse. Some seniors fail to report that they have been victimized for fear that they will be judged incapable of handling their own affairs. Other seniors believe that their victimization will be viewed as grounds for forced institutionalization in a nursing home or other facility. Con artists count on these sensitivities to prevent or delay the elderly from reporting the scam to authorities. If you think you have been scammed, the sooner you contact the Division of Securities or law enforcement, the greater the chance of stopping the fraudster and regaining some of your lost money.

Beware of "reload" scams. Younger victims who are ripped off by swindlers have time to restore some or all of their losses through new earnings. However, most older victims have a finite amount of money that is unlikely to be replenished in the event of fraud. Knowing this, con artists develop schemes to take advantage of seniors who have already been victimized. Faced with a loss of funds, some seniors will go along with another scheme in which the con artist promises to make good on the original funds that were lost... and possibly even generate new returns beyond those originally promised. If you experience a significant loss in an investment, contact the Division of Securities to check out the person who invested your money before sending them any more funds.

Strategy #2: How investment professionals, family, friends, and caregivers can help

When diminished capacity is suspected, what questions should be asked?

  • Who manages your money day-to-day? How is that going?
  • Do you run out of money at the end of the month?
  • Do you regret or worry about financial decisions you’ve recently made?
  • Have you given power of attorney to another person?
  • Do you have a will? Has anyone asked you to change it?

Financial concerns checklist: Are you having any of the following common concerns?

  • I have trouble paying bills because the bills are confusing to me.
  • I don’t feel confident making big financial decisions alone.
  • I don’t understand financial decisions that someone else is making for me.
  • I give loans or gifts that I cannot afford.
  • My children or others are pressuring me to give them money or change my will.
  • People are calling or mailing me asking for money.
  • Someone is accessing my accounts or money seems to be disappearing.
  • Friends or acquaintances, like people I meet at church, want me to change my investment plans.

Dealing with a third party. A new person may enter a client's life, claiming to be a friend or having some close relationship with the client. Sometimes this person may seem overly interested in the client's finances, leading to a tough conversation about the client's best interests. Suggestions for dealing with third parties include:

  • Use non-confrontational demeanor.
  • Ask about relationship to the client.
  • Discuss client’s daily activities and routines.
  • Discuss any of client’s special needs.

Watch for the following behaviors from investment advisers and agents:

  • Demeaning comments about the client
  • Defensive, suspicious attitude
  • Hostility about your inquiries
  • Threat to change advisers on behalf of the client

To report suspected financial fraud involving securities, send an email to DFISecurities@dfi.wisconsin.gov or call the Wisconsin Division of Securities at 608-266-2139.

No “Free Lunch”: Beware of investment seminars

Increasingly, seniors are targeted by financial con artists through invitations to attend “educational workshops” where “nothing will be sold.” Such events are often advertised in local newspapers, through mass-mailings or mass e-mails, and on websites. Usually, they are held at upscale hotels, restaurants, retirement communities or golf courses. Along with the free meal, the firms and individuals that sponsor these seminars often use attractive incentives, such as door prizes, free books and vacation deals to encourage attendance. If you or a family member receives such an invitation, the Wisconsin Division of Securities cautions you to be aware of the following:

Investment seminars are designed to sell. If you have been invited to attend an “educational” program or investment “workshop,” also known as a “free lunch” seminar, be aware that the sponsors of these events usually have a single goal in mind: to sell investment products to customers. Don’t be fooled by vague claims of “urgency” or “can’t miss” opportunities. The “free lunch” seminar may be designed to get you in the door where a salesperson may make un-founded claims about your financial future and later steer you into a one-on-one visit at their office or in your home where the pressure to purchase a financial product can be ratcheted-up.

Advertising and sales materials could be misleading. Advertising and sales materials associated with some investment seminars may include exaggerated or deceptive statements about the safety, liquidity, anticipated rates of return and suitability of financial products offered. In some cases, sponsors may fail to disclose that they have paid for positive testimonials from other customers.

Seminar speakers’ product recommendations may be biased. Seminar solicitations generally focus on the speakers and might not disclose the name of the firm or product sponsors, who typically have a financial interest in products offered and sold to seminar attendees. Always obtain disclosure information about any financial product you are considering purchasing, including information on fees paid by the product sponsor.

“Experts” may misrepresent their qualifications. The education, experience and continued training required to receive and maintain “senior” or other special credentials vary greatly; and, in some cases, can be used as a marketing tool. When used by unscrupulous salespersons, misleading labels are an easy way to gain an investor’s trust, which is usually the first step in selling unsuitable financial products. Always thoroughly evaluate the background and credentials of any person claiming to possess special expertise with seniors or financial products.

Be alert for possible scams. Investment seminars can be legitimate sales events. However, some seminars may involve fraudulent sales practices such as the sale of fictitious or non-existent products, misrepresentations of risk and return and “guarantees” of quick financial rewards for those who act “right now.” You should always thoroughly investigate any financial product before investing.

Product recommendations must be suitable for you. Suitability, especially regarding financial products, tends to be personal. Products vary widely in complexity and there is no “one size fits all.” Suitable investment opportunities address specific circumstances based on the investor’s assets, income, investment objectives, financial liabilities and tolerance for risk. Make certain that any investment you make meets your investment goals over the long-term.

Beware of “Bait and Switch” tactics. Unfortunately, too many seniors have been convinced to replace existing investments with other unproven and unsuitable investments that hide steep sales commissions, high surrender charges or tax consequences. You should be skeptical of any recommendation to radically change or liquidate well-structured, diversified investment plans to fund the purchase of alternative investment products.

Investigate before you invest! Contact the Division of Securities to research any investment opportunity or offer; to inquire about any securities broker-dealers, agents, investment advisers, investment adviser representatives, financial planners; or to report suspected fraud or to obtain consumer information. You can help protect the public by sending us a copy of advertisements or invitations to investment seminars.

Do you suspect financial exploitation of a senior?

To report suspected abuse or neglect of adults who are age 60 or older, call the Wisconsin Elder Abuse Helpline at (833) 586-0107, or contact the elder abuse agency for your county: https://www.dhs.wisconsin.gov/aps/ear-agencies.htm

If the matter involves securities, you may also contact the Division of Securities at (608) 266-2139.