Make the Pledge to Protect Your Finances

Courtesy photo
Courtesy photo

Did you know that older residents are the most common targets of financial scams? Dishonest advisers prey on the elderly as they believe older residents tend to have more assets in savings and pensions accounts as they prepare for retirement.

But don’t let them fool you or your loved ones. As part of World Elder Abuse Awareness Day, which is recognized on June 15, the District of Columbia Department of Insurance, Securities and Banking warns District consumers to be on the alert for unlicensed financial advisers who promise big financial gains with unrealistic investment opportunities.

Many make their moves through unsolicited phone calls and emails that are pushy and demand payment right away. While brokers, investment advisers, and their firms are required by District law to be licensed or registered, unlicensed advisers often pose as legitimate, licensed professionals. Oftentimes, by the time a scam is exposed, it’s usually too late and the victim’s assets are depleted.

For example, the daughter of an elderly woman submitted a complaint to the Department that after her father’s death, her mother, who lives in Pennsylvania, invested $400,000 with a company based in the District of Columbia that was not licensed. The mother attended a financial seminar in Las Vegas when she met the unlicensed financial adviser and was offered high guaranteed returns and a fixed-term investment. When the elderly woman wanted to withdraw the balance in her account of $400,000, the unlicensed financial adviser said he would have to find other investors before she could be paid.

After a month of requests for a full withdrawal, he only sent her $10,000. The mother was holding out hope that the adviser would eventually return the money. The daughter, on the other hand, believed it was a type of pyramid scheme — and it probably was. A pyramid scheme is an investment fraud where investors recruit more investors, with returns being given to early investors using money contributed by later ones. The daughter also is concerned that the unlicensed adviser is preying on other victims, since he had an active website and speaking engagements. (The website is no longer active.)

Here are five red flags to look out for in a financial adviser.

1. Promises of High Returns with Little or No Risk. The promise of a high rate of return, with little or no risk, is a classic warning sign of investment fraud. Every investment carries some degree of risk, and the potential for greater returns generally comes with greater risk. Avoid putting money into “can’t miss” investment opportunities or those promising “guaranteed returns.” Remember – if it sounds too good to be true, it probably is.

2. Unregistered Persons. Always check whether the person offering to sell you an investment is registered and licensed, even if you know him or her personally.

Unregistered/unlicensed persons who sell securities perpetrate many of the securities frauds that target older investors. Researching the background of the individuals and firms selling you investments, including their registration/license status and disciplinary history, is free:

• Contact the DISB at 202-727-8000 or via the website at disb.dc.gov.

• Search the Security and Exchange Commission’s Investment Adviser Public Disclosure (IAPD) online database at www.adviserinfo.sec.gov.

• Search the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck online database at brokercheck.finra.org.

3. Red Flags in the Financial Professional’s Background. Even if an investment professional is in good standing with his or her regulators, you should be aware of potential red flags in the professional’s background. DISB, SEC, and FINRA records can be used to identify red flags for potential problems, including: (1) employment at firms that have been expelled from the securities industry; (2) personal bankruptcy; (3) termination; (4) being subject to internal review by an employer; (5) a high number of customer complaints; (6) failed industry qualification examinations; (7) federal tax liens; and (8) repeatedly moving firms.

4. Pressure to Buy Quickly. No reputable investment professional should push you to make an immediate decision about an investment, or tell you that you’ve got to “act now.” If someone pressures you to decide on an investment without giving you ample time to do your research, walk away.

5. Free Meals. Be wary of “free lunch” seminars. The ultimate goal of free meal investment seminars is typically to lure new clients and to sell investment products, not to educate the public. If you decide to attend one, commit to yourself before the seminar that you won’t purchase anything or open an account while at the seminar. Even if the free meal does not come with a high-pressured sales pitch, you should expect the “hard sell” in subsequent contacts from the person selling the investment.

Before you invest or pay for any investment advice, make sure your brokers, investment advisers, and investment adviser representatives have not had disciplinary problems or been in trouble with regulators or other investors. You also should check to see whether they are registered or licensed. The information is easy to get, and one phone call or web search may save you money.

The District of Columbia’s Department of Insurance, Securities and Banking regulates the city’s financial-services businesses. It has two missions: to effectively and fairly regulate financial services to protect the people of the District; and to attract and retain financial-services businesses. For more information, 202-727-8000 or visit disb.dc.gov.

Source: U.S. Securities and Exchange Commission