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March 29, 2017

Senior Scams: What to Know About Investment Fraud

Baby boomers aren’t just living longer than the generations before them — they’re also much wealthier. Their median net worth of $241,333 makes them 34 percent richer than those born between 1936 and 1945 and 39 percent richer than those born between 1926 and 1935.

In fact, by 2030 it’s estimated there will be a 34 percent increase in consumers aged 50 and over. This increase has caused marketers to take notice. While they normally target consumers aged 18-49 — of which there will only be a 12 percent increase by 2030 — marketers are now realizing the buying power of boomers.

Marketers, however, aren’t the only ones targeting boomers. Investment scammers have their eyes on this generation, too. And while you might think you won’t be affected by an investment scam, consider this: A recent AARP study found men who see accumulating wealth as a life achievement and are risk-takers are most likely to be victims of senior scams and investment fraud.

Differences between investors and fraud victims

Victims of investment fraud displayed the following traits more frequently than investors who were not defrauded.

Wealth as a measure of success: 60 percent of victims reported that some of the most important achievements in life were acquiring money; in contrast, only 41 percent of general investors agreed with this sentiment.

More receptive to sales pitches: While it might seem rare to find someone who enjoys hearing a sales pitch, investment fraud victims reported they liked to keep their “eyes and ears open for investment opportunities no one heard of yet.” Because they value wealth, victims are more susceptible to exaggerated promises.

Risk-taking: Victims also reported they were more willing to take chances with their money as long as there was some chance it would pay off.

In addition to the above beliefs, victims reported receiving at least one investment sales call and one or more emails targeting them per month. The majority of victims were over age 70, male and were married.

How to prevent investment fraud

If you have some of these beliefs or fit the demographic of investment scam victims, don’t worry. Doug Shadel, coauthor of the study, says you just need to be aware of your own behaviors and be judicious when deciding to invest. Follow these steps before you make any investment.

Check the broker: Investment scam victims reported they rarely performed a background check on brokers or any other person who contacted them with an investment opportunity. If a broker contacts you, get his or her information and use nasdbrokercheck.com. Federal and state securities laws require brokers, advisers and firms to be licensed or registered.

Ask around: Don’t agree to work with the first investor who contacts you (or who you contact). Ask friends and family who they use for investments, how long they’ve done business with them, any problems they’ve experienced and what drove them to choose the person or firm.

Ask questions: Before agreeing to work with an investor, the Financial Industry Regulatory Authority recommends asking these questions.

  1. What experience do you have working with people like me?
  2. What professional licenses do you currently hold?
  3. Are you registered with FINRA, the SEC or a state securities regulator? If so, for how long and in what capacity?
  4. Do you have any disciplinary actions, arbitration awards or customer complaints? If so, please explain them. Compare responses to information found in BrokerCheck and other third-party sources.
  5. Do you or your firm have an overarching investment philosophy? What type of investment products and services do you offer? Are there any products or services you don’t offer? Why?
  6. Do you or your firm impose any minimum account balances on customers? If so, what are they? What happens if my portfolio falls below the minimum?
  7. How do you get paid? Do you receive commissions on products I buy or sell? A percentage of the amount of my assets you manage? A flat fee? Any other method?
  8. What other fees and expenses do you charge?
  9. Can you provide me with any customer references?
  10. Are there conflicts of interest that we have not discussed? What are they and how do you resolve them?

While many investment opportunities may seem appealing, by doing your homework, asking questions and checking the background of brokers, you can avoid losing your hard-earned money.

Avoid Senior Scams

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