Personal Finance

Prevent Elderly Financial Exploitation

Seniors make up for one third of the nation’s net worth, which makes them a considerably easy target for advisors looking to exploit them financially. Ninety percent of abuse comes from family members or trusted others like, financial advisors. According to a 2007 University of Miami study, since many elder suffer from cognitive impairment, investment skill deteriorates dramatically after the age of 70. Warning signs of elder financial exploitation often include sudden reluctance to discuss finances, unusual unexplained cash withdrawals and wire transfers.

Between 2008 and 2011, a Metlife Study of Elder Financial Abuse found a 12 percent increase in the dollar amount of which elders were being defrauded. One of the most common scams targeting seniors are “free lunches,” marketed as educational presentations. However, these meals often end up as sales pitches for investment products with misleading claims. The elderly are put in a situation where they are given a hard sell for unsuitable investments, and pressured to buy investment products after accepting a free meal.

Another instance in which elders fall victim to financial exploitation is via unsolicited phone, mail or e-mail pitch. In this case, they are tempted with financial products and services, like low-cost, high-yield investments. Another common tactic advisors use to exploit elders is to omit or misrepresent information about the costs and risks of a product. Equity indexed annuities and variable annuities are the most common products used because they promise a fixed income throughout retirement. Variable life insurance, mutual funds and universal or whole life insurance are other bad investment products advisors market to seniors.

These products are sold without any disclosure of risk, which most often includes extremely high commission rates and liquidation penalties. It is normal for seniors to end up in situations where they don’t have access to liquid assets in retirement.