Bankrate, which is a leading Internet consumer banking marketplace, has released an interview with Christopher Cox, chairman of the SEC that was conducted as part of Bankrate.com’s Financial Literacy Program. Bankrate does a real service to the community with this interview and I commend them because it helps to put into focus what is actually going on with seniors and also how they can be protected from scams. Moreover, it comes from the person who should know, and does.Cox has first hand knowledge of what’s involved and he relates a tale about his own parents. “Before my mother died a few years ago, she was pestered by a seemingly endless barrage of annuity schemes and unsuitable mortgage offers. Despite the fact that she was suffering from throat cancer and could barely speak, she received unsolicited sales pitches over the phone and even in person. Even though my father was suffering from Alzheimer’s disease, the brokers would prey upon him, as well.”
Talk about a wake-up call! Cox points out that the products being pushed weren’t just unsuitable but affirmatively harmful to anyone in his parents’ circumstances.
He says that both in Congress and since he became chairman of the SEC, he’s heard of similar stories from constituents and colleagues. He notes that with the baby boomers reaching retirement age, the ranks of older Americans are beginning to swell as never before and this is coupled with the fact that Americans are living far longer than ever before. “Just as the notorious Willie Sutton described the bank robber’s propensity to ‘go where the money is,’ securities fraudsters will follow the money, too. Households led by people over 40 already own 91 percent of America’s net worth.”
Bankrate says that in the study on senior investor fraud that was released at the SEC’s Seniors Summit last year, it was found that investment scam victims are more financially literate than non-victims. Bankrate then asks the question, “Since financial competency alone isn’t enough to prevent seniors from falling for scams, what do people need to know about the social influences, or persuasive tactics, that may be used against them?”
Cox responded that fraudsters will play to a senior’s experience. “They compliment the would-be victims on their good sense and financial literacy.”
He also identifies a dozen social tactics that scam artists use in making their pitch. Among the most common are:
- Phantom Fixation. Dangling money or vacation to tantalize the victim.
- Social Consensus. Convincing the victim that his or her peers and neighbors are all making this particular investment.
- Scarcity Approach. Victims are pressured to act fast before it’s too late.
- Reciprocity Principle of Social Interaction. The con does a small favor for the victim relying on human nature to induce the victim to return the favor in kind by buying the investment.
What can the senior do? Cox says the first rule is to avoid hasty decisions and to take the time to thoroughly research any investment or other financial opportunity. “The best advice we can give investors is to ask questions and a lot of them.”I see it as well. There are too many friends of mine who make investments much too quickly. They could have avoided trouble and losses had they only asked basic questions about their financial reps from the beginning.
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