When Mary Bach and her husband started thinking about retirement after more than three-decade careers at Westinghouse Electric Company, they suddenly got numerous meal invitations from people who claimed to be local representatives for well-known financial institutions. These people, with alphabet soups of letters following their names, would present financial product pitches including numerous charts and graphs before the meal was served.
Despite delicious food and impressive credentials, Bach said she didn’t trust the presenters, who lacked brochures, prospectuses and details on how they conformed to state laws. Just lots of talk, she said.
They did promise one thing, though: no risk with guaranteed returns. Their goal was to hook Bach and others like her to later solicit them for private consultation.
“Our conclusion is, enjoy the meal, but be wary of the deal,” said Bach in a panel discussion co-hosted by the SEC and the American Association of Retired Persons.
Bach, who now works as chair of the AARP Pennsylvania Consumer Issues Task Force to protect elderly citizens from fraud and scams, said one representative with the fancy title of CSS, or certified senior specialist, later admitted to her that he had received a certificate in 24 hours via the internet.
“We urge people to scrutinize credentials, use BrokerCheck, do their homework and understand that the printed contract always prevails over spoken promises and a nice dinner,” she said.
The FBI
“Helping older investors know the signs of potential fraud to protect themselves to the assets they worked a lifetime to accrue must remain a central feature of our collective outreach effort,” SEC Commissioner Hester M. Peirce said in the panel discussion.
But tackling the enormity of the financial markets for older investors can be tricky as just a few bad investments or unscrupulous advisors can be financially devastating, said Phillip Aidikoff, securities arbitration attorney and past president of Public Investors Advocate Bar Association.
FINRA rules require that an oral presentation for financial products be consistent with the risks and rewards associated with a particular investment. But many times those presentations are followed by investors being handed a complicated prospectus or initial offering document they don’t understand, which requires further oral presentations that must present a fair and balanced picture regarding both risks and rewards.
“And let's face it, even for people that are financially literate and can read through offering documents, it does pose a challenge. Every time a new product is offered to the public, it takes a while to get comfortable that you understand the true mechanics of the offering,” Aidikoff said.
In reality, brokers often receive substantial compensation for complicated alternative investments such as structured products. These commissions do not appear on trade confirmations sent to the clients, Aidikoff said.
“If there's one thing that's clear to me, it's that if you can't understand the product right out of the box, I would turn and run as fast as I possibly could,” he said.
For financial advisors who have fiduciary duties to their clients, Aidikoff said they should understand who the client is and what is appropriate for that person at that moment in time, which requires a detailed conversation relating to what that person has done in their lives, what they want to do as they move forward and how much risk they're willing to take.
“The days of the defined benefit plan obviously are gone. And now people are depending on Social Security and their own ability to gather and make good investments to live off of (during) an ever-increasing life span. It’s a huge responsibility,” he said.
For those elderly investors who already fall into the traps, advisors and their family members should change the narrative about who to blame, said Byron Peterson, AARP Connecticut Executive Council and lead Fraud Watch Network volunteer.
“Right now, we tend to not recognize the criminal who prepared to perpetrated these crimes, but we (put) the blame on the older people, which made them afraid to report it because they didn't want to be seen as old and stupid,” he said.
Changes should also happen at the regulatory level, as most people do not pay attention to education on subjects because they don't think they're going to need it, said Amy Nofziger, director of fraud victim support at AARP.
“Education isn't the only way. Most people don’t wake up and think, ‘today I'm going to fall victim to a bitcoin or imposter scam,’” she said, “We need to have interventions, systematic changes and continue to discover other ways to tackle these crimes.”
