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Seniors the Target of Big-Ticket Fraud

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Cecilia’s mother was the perfect mark. With a move to a nursing home looming, she already was suffering dementia. According to Cecelia, her brother took advantage of their mother’s declining mental state by convincing her to sign a reverse mortgage, in which she received payments from Wells Fargo for the equity she already had invested in the house.

The day the new mortgage was approved, in 2008, her brother took $35,000 of the lump-sum payment, Cecelia says.

“The bank has the house,” she wrote in response to a recent story, while her mother “is now in a nursing home and penniless.”

Such massive fraud against senior citizens is not uncommon. According to a new survey of financial planners by the Certified Financial Planner Board of Standards, 77 percent of planners surveyed said they have worked with elderly clients who were defrauded by unfair, deceptive or abusive financial products.

And the amounts of money involved can be staggering. The median elderly victim of financial fraud lost $50,000, the survey found. In most cases, the abuse is coming from other financial planners.

“Much of the financial exploitation is taking place within the financial industry,” according to the survey, and “the problem is pervasive in the United States.”

The most common form of deception involves variable annuities, the survey found, showing up in 76 percent of all reported senior fraud cases. Such investments require an up-front payment, and then pay returns that vary based on the performance of a specific set of investments, possibly including mutual funds or bonds.

Variable annuities can be good investments, says Charles Alkire, a Florida-based financial planner who specializes in advising senior citizens. The problem is that they are often too complex for consumers to understand, and they often involve layers of fees that can surprise even experienced investors.

“Elderly people get into a situation where they just don’t understand all the costs involved,” Alkire says.

Scams involving the sale of variable life insurance were the second most common, accounting for 32 percent of all observed cases. Reverse mortgages were involved in 15 percent of the scams.

Not all the scams involve outright fraud, according to Alkire and the board’s study. Far more common, involving 74 percent of cases reported to the board, are sales of financial products that simply are not right for an elderly person, such as long-term life insurance or government bonds that may not be redeemed for decades. One CFP member reported that she has an 80-year-old client who was sold an auto repair insurance policy, even though she rarely drove her car, which still had its original warranty.

“Senior fraud is absolutely rampant, and it comes in all ways, shapes and forms,” Alkire says.

Over half — 58 percent — of cases happen when financial planners omit important facts about investment products. Only 19 percent involved outright fraud or lying, according to the survey. But no matter how or why it occurs, the results can be just as damaging.

“It’s easy to see why seniors are vulnerable, given the measly returns they earn on their retirement money if they park it in savings or even CDs,” says Gerry Detweiler, Credit.com’s consumer credit expert. “And it can be difficult to know whom to trust when it comes to investment advice.”

Along with its survey, the CFP sent a letter to the Consumer Financial Protection Bureau, asking the government’s newest watchdog agency to referee the rapidly growing number of professional certifications within the financial planning industry. There are currently 140 different accreditations and acronyms planners can use to present themselves as qualified financial experts, according to the board.

“With no federal or consistent state regulation or oversight of certifications and designations, Americans – especially seniors – are left on their own to sort through the alphabet soup of letters at the end of a financial professional’s name,” according to a press release from the board. The organization called on the protection bureau to create a new rating system that would help seniors decide which advisors are reputable.

Image: Abdulsalam Haykal, via Flickr

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