Four Warning Signs of a Financial Scam
Nobody likes to admit they’ve fallen for a financial scam, but the fact is, it’s easier than ever to get caught up in one. This is especially true in today’s all-digital world, where practically every shred of data related to your personal and financial background can be found online.
While no one is forcing you to use the Internet to manage your financial accounts, purchase goods and services, or communicate with the outside world, these days it’s nearly impossible to live your life without the web. This net-based existence can feel somewhat unnerving for those of us who came of age while the tech revolution was already underway, but for the elderly, who lived the vast majority of their lives offline, it can be absolutely overwhelming.
Given their lack of tech experience, coupled with the fact that many of them are undergoing varying levels of cognitive decline and sometimes live lonely, isolated lives, scammers view seniors as easy targets. And many of today’s con artists are so sophisticated, even the most intelligent and educated can be duped.
To protect your aging loved ones (and yourself) from such predators, it’s critical to know the warning signs of financial exploitation. The following are four big red flags to watch for:
01 | UNEXPECTED REQUESTS
If a family member or friend contacts you out of the blue asking for money, especially via email or text, you should be wary. If the request comes from an unfamiliar email address or phone number, you should be extremely wary. While such requests aren’t totally unheard of, never send money unless you can verify the individual’s identity.
A popular con, known as the Grandparent Scam, involves someone calling and pretending to be your grandchild. The “grandchild” explains he or she is in trouble and needs money immediately. The caller then asks you to wire the money or give it to a third party, usually someone posing as a lawyer or police officer.
No matter how urgent the caller may sound, you should always verify their identity. One of the easiest ways to do this is by having the person call you back on his or her phone. Or if the individual’s phone is dead or lost, you can ask them questions only the actual person would know the answer to, such as the name of their first pet. If they refuse, seem unusually aggressive, or act odd, do not send money. In fact, it is a good life rule never to wire money to anyone unless you have a written contract with a respected and known professional, and you know for a certainty that the transaction you are making is a real one. Emergency wiring of funds is almost always a bad idea.
Outside of relatives and friends, scammers often pretend to be from the IRS or another government agency, demanding immediate payment of back taxes or some other debt. They might even threaten you with arrest, ruined credit, or additional fines if you fail to comply. And if they don’t directly ask for money, they sometimes ask for verification of your personal information or direct you to visit a phishing website that secretly puts data-collecting viruses on your computer.
Regardless if it’s done by phone, email, social media, or text, no government agency collects money this way. Moreover, legitimate organizations will be more than happy to verify they are who they claim to be, and will never demand on-the-spot payment. No matter if it’s a government agency, a financial institution, law enforcement, an attorney, or a private business, you should always be allowed to verify the legitimacy of the request and consult with a trusted advisor like us before making any financial transaction.
02 | UNSOLICITED MONEY-MAKING VENTURES
Whether through a savvy business deal or by winning the lottery, we all fantasize about striking it rich. And if you’re retired on a fixed income, this fantasy can be all-the-more alluring. Scammers know this and will use your dreams of easy money to trick you into investing in a too-good-to-be-true venture that promises big bucks for little or no effort.
There are endless variations on this popular con, from wealthy foreign nationals needing assistance transferring money to more legitimate-sounding business deals offering huge payoffs with no risk. These messages sometimes appear as if they were sent to you accidentally, making it feel like fortune has finally favored you—just like you always dreamed it would.
But in reality, strangers don’t just randomly offer other strangers incredible money-making opportunities. What kind of trustworthy business person would seek to partner with someone they’ve never met? And if it’s such a great investment, why not recruit someone they know or simply do it themselves? Indeed, any unsolicited money-making venture you receive online from a person you don’t know is almost certainly a scam.
Many such scams originate in foreign countries with people who aren’t fluent in English, so messages with incorrect spelling, poor grammar, and/or unusual phrasing are often a dead giveaway. Other tip-offs include messages containing the following (or very similar) language:
You've won one of several valuable prizes.
You've been specially selected for this one-time offer.
You'll get a free bonus if you buy our product.
You've won money in a foreign lottery.
This investment is low risk and offers a higher return than anything else.
Our product is free, but we need to put shipping and handling charges on your credit card.
Advance payments or fees are required to clear the promised funds or complete the offer.
03 | REQUESTS FOR PERSONAL INFORMATION
Whenever someone unfamiliar asks you for personal information like a credit card number, Social Security number, or your mother’s maiden name, proceed with extreme caution. Ask them why they need this information. Request they verify their identity. Enquire about alternate methods of proceeding that do not require such private information.
Reputable sources will respect your privacy and be more than willing to provide you with identity verification, or at least offer an alternate way for you to proceed without the need for such personal data. For example, if you receive an email request for your credit card number, look up the organization’s phone number using a source other than what they provide in the email, and ask if you can call and give your information over the phone instead.
One such con has scammers call claiming to be from the Social Security Administration (SSA), and the number may even come up on your caller ID as the SSA. The caller says your Social Security number has been stolen, used in a crime, or suspended. To protect your funds, they direct you to withdraw the money in your bank account and transfer it to a gift card. The scammers then ask for the gift card PIN number for "safekeeping.” They also may try to get you to reveal your SS number by having you verify it over the phone.
However, the SSA does not suspend your Social Security number, nor will it ever direct you to withdraw money from your bank account. What’s more, any situation in which you’re told to buy gift cards and then give out the cards’ PIN number is undoubtedly a scam.
Today’s most sophisticated scammers don’t even need to ask you for your personal data: They can steal it simply by having you open an email attachment or visit a website that’s loaded with data-scraping bots. Don’t open email attachments from strangers—or even friends and family if the attachment seems unusual. Set all of your social media accounts to private so that your personal info isn’t public. And invest in anti-virus and anti-spyware programs to protect your computer from hacking.
04 | PROMISES TO “TIME” THE MARKET
Finally, while they would likely not be considered criminal scammers in a court of law, one of the biggest financial scams of all time is when financial advisors promise their clients that they have “insider knowledge” about top mutual funds or hot stocks that they can utilize to beat the stock market average. Various fund managers like to pretend that they can use clients’ money, selling low and buying high, moving in and out of the market, in order to increase someone’s hard earned savings and investments. In the long run, these promises always turn out to be both empty and the cause for substantial lost savings.
There is no question that many financial advisors and fund managers have a vested interest in conducting lots and lots of transactions, actively managing their clients’ investments with busy portfolios. That is because lots of buying and selling in the stock market earns the fund manager commissions, while it costs you in capital gains taxes and increased management fees. Stock-picking “experts” are never who they claim to be. Statistically, they fail to help their clients’ portfolios perform better than the average stock market return.
As David Bach wrote, “[b]etween 1992 and 2002, the stock market produced an average annual return of 9.34%. This was a period that began with one of the most roaring bull markets in memory – and then ended with one of the most brutal busts in half a century.” Did you get that? The entire stock market averaged around 9%, even with the economy failing.
If you were to google “what is the average stock market return long term?” you would find that the average stock market return, long term over more than the last century, is closer to 10%. (In other words, if you saved just $100 per month for the next 30 years, at an annual average rate of return of 10%, the total $36,000 that you would have invested over that time period would be worth $197,392.83 at the end of thirty years.) And yet, no actively managed mutual funds have ever beat a 10% return in the long term. What that means is that any financial advisor or fund manager who tells you he can buy and sell your investments to consistently yield a higher return than 10% is telling you that he can do what no financial advisor in the history of finance has ever done. And he is making you an offer to deplete your investments with lots of activity, fees, commissions, losses, and capital gains taxes on gains, if you would be willing to let him.
J.L. Collins writes: “The fact is, few fund managers will beat the index over time. In 2013, Vanguard posted the results of their research on this. Starting in 1998 they looked at all of the 1,540 actively managed equity funds that existed at the time. Over the next 15 years only 55% of these funds survived and only 18% managed to both survive and outperform the index. 82% failed to outperform the unmanaged index. But 100% of them charged their clients high fees to try.” Remember how our “dreams of easy money” are used to trick us into investing in too-good-to-be-true ventures? Well, too-good-to-be-true ventures are investment fund managers’ speciality.
Given this is the case, if a financial advisor or money manager tells you that he’ll try to actively manage your investments, just ask him why you shouldn’t just invest in a total stock market index fund instead that guarantees the stock market average. More recently, Jeff Sommer, in his December 2, 2022 New York Times article, “Mutual Funds That Consistently Beat the Market? Not One of 2,132”, cautioned his readers as follows: “Note that for the 20 years through June, the S&P 500 annually returned more than 9 percent, on average — which means your investment doubled in value every eight years. That’s roughly what an index fund would have done for you — and it’s better than the vast majority of actively managed funds were able to do.” So don’t fall for the financial scam of paying someone to “actively manage” your investments.
PROTECT YOUR LOVED ONES FROM ALL POSSIBLE THREATS
By becoming familiar with how such deceptions work and knowing what to look for, you and your loved ones will be far less likely to be conned. At the same time, you should also do everything you can to safeguard your family’s finances from other threats that have nothing to do with fraud.
Without comprehensive estate planning, your family’s wealth and assets are in real danger of being seriously depleted or lost in the event of your death or incapacity. Meet with our Personal Family Lawyer® to learn about the best planning strategies you can put in place to ensure your loved ones will be taken care of no matter what happens to you.
This article is a service of J.A.A. Purves, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.