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    Avoiding Financial Scams And Abuse In 2013

    You’re a target for scams and financial abuse. That’s a fact we all need to acknowledge. Fortunately, you can take steps to reduce your risk, and many of these steps are very easy to do and cost little or no money.

    Fraud and financial abuse are not the same thing. You know what fraud is. Financial abuse is subtler. Financial abuse generally is when someone in a position of trust betrays or takes advantage of the person who trusted him. Abuse can include a financial adviser selling you an inappropriate product or one with hidden fees. It also can include caretakers and family members taking money or neglecting their responsibilities.

    A couple of things naturally make each of us more vulnerable to fraud and abuse as we get older. First, it’s been demonstrated that cognitive ability and decision making decline after early adulthood. This isn’t the same thing as having dementia or Alzheimer’s. It means we don’t analyze information and make decisions as well as we used to and certainly not as quickly. These abilities decline at different rates for different people.

    Second, studies show older people tend to be more optimistic and positive than younger people, despite the image of “grumpy old men.” While a positive attitude can help people live longer, it also makes them more trusting and less likely to consider the negative aspects of proposals, investments and the people around them.

    Because of these two factors, healthy, alert, vigorous people are more likely to be taken advantage of after 50.

    That’s why you need to take steps to protect yourself from scams and abuse. The costs of these steps vary from no cost to low cost, but the cost always is less than the damages from scams and abuse. Consider these steps.

    The fastest and easiest way to avoid fraud and abuse is to add more people to your financial team. One simple, effective step is to have more people regularly see your financial statements. There’s usually little or no cost to having copies of your statements mailed or emailed to others or allowing them online access to the statements.

    Good candidates for seeing your statements include responsible adult siblings, close friends and professional advisers, such as accountants and estate planners. Their job is to look for unusual transactions, such as large expenditures, new investments, a new pattern of expenses and similar suspicious activities.

    Another really good use of a financial team member is as a reviewer and sounding board for making decisions.

    For example, a proven way to avoid scams and abuse is to tell anyone who asks for money or proposes an investment to make their case to your adviser or advisers. It might be an accountant, attorney, money manager or broker. The professional likely will charge an hourly rate for this, but scamsters usually reveal themselves by not following up with your adviser.

    The team approach is a good way to avoid having one financial adviser take advantage of you through bad deals or excess fees. Make sure all your advisers know who your other advisers are and let each of them know whenever you’re contemplating a significant move.

    Regular reviews of your finances with each of your advisers or even with a trusted confidante or friend also prevent problems. A team approach also tips you off to someone whose motives are not the best. If someone who’s giving you financial advice objects to sharing information or including others in meetings, you should be concerned.

    Trusts and powers of attorney also can avoid a lot of problems when the right people are in charge. Likewise, having someone manage or co-manage your money is a good preventive measure.

    Another approach is to be alert for key promises and actions that are markers of scams and abuse.

    Guaranteed high returns are a definite red flag. It is rare that a legitimate investment offers a guaranteed return. Legitimate guaranteed returns are low. Even in the days of normal interest rates, guaranteed returns rarely exceeded 3 percent or 4 percent.

    An investment return doesn’t need to be guaranteed for the investment to be suspicious. When the seller says the investment has high potential returns with very low risk, he’s likely not being honest.

    Complicated investments or presentations also are warning signs. If you’re a sophisticated investor who’s using a team to evaluate investments with high minimums, you might expect to see some complicated deals. Otherwise, complicated strategies, terms or presentations most likely are used to hide problems with investments. Con artists know that many people, especially as they get older, are embarrassed to admit they don’t understand something and are more likely to go along with it than to question it.

    Urgency is another red flag. There are very few legitimate financial moves with short deadlines. Often, pressure to act quickly is a tool to prevent you from considering all aspects or having others review it.

    Don’t invest in or buy anything with inadequate disclosure. Anything that meets the legal definition of a security must have a detailed prospectus. Insurance products also are required under State laws to provide significant details. When all you’re given are a few brochures and flyers, you should be suspicious.

    Another way to avoid scams is to minimize what security experts call “pocket litter,” the items you carry around that give valuable information to crooks.

    Many people keep significant personal information in their wallets, purses, cellphones, computers and elsewhere. Experienced criminals who gain access to these items, even if for only a short time, can learn enough to commit identity fraud or set you up for a con.

    Take a hard look at what you carry around. At a minimum, use a meaningful password to open electronic devices. Even better is to avoid taking out of your house information that can be useful to criminals such as Social Security numbers, bank and credit card numbers, birthdates and the like. Carry only what you need.

    The keys to avoiding scams and financial abuse are transparency, teamwork, and checks and balances. The more of these you have, the better protected you’ll be.

    — Bob Carlson

    Bob Carlson is editor of the monthly newsletter and web site, Retirement Watch. Carlson is Chairman of the Board of Trustees of the Fairfax County Employees' Retirement System, which has over $3 billion in assets, and was a member of the Board of Trustees of the Virginia Retirement System, which oversaw $42 billion in assets, from 2001-2005. He was appointed to the Virginia Retirement System Deferred Compensation Plans Advisory Committee in 2011. His latest book is Personal Finance for Seniors for Dummies, published by John Wiley & Co. in 2010 (with Eric Tyson). Previous books include Invest Like a Fox... Not Like a Hedgehog, published by John Wiley & Co. in 2007, and The New Rules of Retirement, as published by John Wiley & Co. in the fall of 2004. He has written numerous other books and reports, including Tax Wise Money Strategies, Retirement Tax Guide, How to Slash Your Mutual Fund Taxes, Bob Carlson's Estate Planning Files, and 199 Loopholes That Survived tax Reform. He also has been interviewed by or quoted in numerous publications, including The Wall Street Journal, Reader's Digest, Barron's, AARP Bulletin, Money, Worth, Kiplinger's Personal Finance, the Washington Post, and many others. He has appeared on national television and on a number of radio programs. He is past editor of Tax Wise Money. Carlson is an attorney and passed the CPA Exam. He received his J.D. and an M.S. (Accounting) from the University of Virginia and received his B.S. (Financial Management) from Clemson University. He also is an instrument rated private pilot. He is listed in several recent editions of Who's Who in America and Who's Who in the World.

    | All posts from Bob Carlson

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