Investment fraudsters are highly skilled at what they do and view people of all ages as potential targets for their crimes. The elderly, however, may be especially vulnerable to investment fraud and financial abuse because they often have nest eggs to invest, say aging experts. The elderly also are generally more trusting of strangers. In addition, many elderly individuals suffer from decreased cognitive functioning that, in turn, affects their decision-making capacity and makes them susceptible to people looking to defraud them.
The prevalence of elder fraud has reached epidemic proportions, according to the National Association of Area Agencies on Aging. And it will continue to grow as Baby Boomers age. Financial exploitation of the elderly – from unauthorized transactions in a victim’s brokerage account to telemarketing scams and identity theft – costs an estimated $3 billion annually, said Sandy Markwood, CEO of National Association of Area Agencies on Aging, in a December 2012 article in USA Today.
About 55% of elder fraud is perpetuated by a family member. “It’s not usually the close children, but the removed relative. And what they tend to do is try to isolate the older person, so no one can see what is going on,” Markwood notes.
According to the North American Securities Administrators Association (NASAA), some of the most common financial products and practices used in elder investment fraud include distressed real estate schemes, energy investments, gold and precious metal investments, promissory notes, private placements, and securitized life settlement contracts.
The ways and methods in which fraudsters lure victims into their net of opportunity run the gamut. But there are several common red flags associated with investment scams. NASAA offers the following list of a few of the more common ones used by scam artists:
The Pitch: This investment has a guaranteed high return, with no risk involved.
The Catch: There’s no such thing as a guaranteed investment. The higher the return, the more risk involved. Period. The guaranteed return sales pitch is often aimed at people who are non-risk takers, particularly those like the elderly who are on a fixed income or individuals who are near retirement and worried about not having a large enough nest egg. Even with legitimate investments, it’s important to know the risk level you are taking and invest only what you are willing and can afford to lose.
The Pitch: There’s a shortage of opportunity available; you need to get in before it’s too late.
The Catch: If it’s a legitimate deal, that same deal will be available tomorrow. The high-pressure sales pitch is used to create a false sense of urgency, whether it’s a limited amount of the investment product or a scarcity of time to invest. Never feel pressured to make a quick decision when it comes to investing money. Take your time and talk it over with an objective third party, some who can check the facts regarding the investment opportunity.
The Pitch: This is an offshore investment, and it’s tax free.
The Catch: You can defer paying taxes, but you can’t avoid paying them. This type of deal is often pitched as a secret and is an opportunity you should keep to yourself. Promoters of these investments hope to avoid hard questions from family, friends or financial advisers who might see through the scam. Often, your money will be transferred to overseas locations, making it harder to recover and even harder for the authorities to investigate.
The Pitch: You will profit just like the experts; get the secrets to their success.
The Catch: If the investment is so profitable, why do the investment promoters need to contact YOU out of the blue? Promoters utilizing this tactic are trying to convince you that he or she has access to inside information known only to a select few who are said to be making a lot of money. If you hear phrases like “secret markets,” “prime bank guarantees,” take your checkbook and run because secret prime bank markets simply don’t exist.
The Pitch: You can trust me. I have credentials and extensive experience.
The Catch: Credibility can be stretched and faked. If the person pitching the investment opportunity is legitimate, he or she should have no qualms about you conducting a background check. Take the time to determine if the authenticity of the individual’s education and experience requirements by contacting the organization that issued the credential. One of the first resources investors should turn to when choosing whether to do business or continue to do business with a particular firm or individual is BrokerCheck. The free tool helps investors research the professional backgrounds of current and former Financial Industry Regulatory Authority-registered brokerage firms and brokers, as well as investment adviser firms and representatives.