Retired Americans Should Be On Guard Against Abuse From Financial Advisors
By Mary Romano, The Wall Street Journal
Anybody can retire. It’s what comes later that many folks find so difficult.
With people who reach 65 now often living another 20 or 25 years, an increasing number of elderly Americans are having to cope with financial stress as they never expected, for years longer than they ever imagined. Adult children also frequently shoulder a burden as sickness and diminishing capacity make it impossible for their parents to continue managing their own finances.
Small wonder, then, that many people seek professional help, or that financial planners and investment advisers of all stripes are reaching out to this growing market. But where the need is great, so is the opportunity for abuse.
After practicing law for 26 years, Tucson Ariz. , attorney Allan Bogutz says, “I’ve seen more people coming in today with more inappropriate investments than in the past”. Mr. Bogutz, a partner in Bogutz & Gordon and a former president of the National Academy of Elder Law Attorneys, also says he sees an overuse of living trusts, a legal device often used to avoid probate-the procedure required in each state to validate a will-or to provide for the orderly management of assets if one should become disabled or incompetent. And, he says, there are instances in which good life insurance policies are exchanged for others for no other reason than to benefit the agent.
“In the newspapers, you see ads for lots of seminars for estate planning, living trusts, insurance, and almost invariably, these people are selling something,” Mr. Bogutz adds. “They are not offering an unbiased look at what’s best for people”.
The level of abuse is impossible to quantify, but prosecutors, lawyers and consumer groups say they are seeing more and more instances of aggressive pitches to the elderly. Regulators say the culprits run the gamut from brokers with well-known firms to financial planners who work out of their homes.
“Seniors are being targeted and scammed, “ says Michael T. Kogut, Massachusetts assistant attorney general for elder protection, “The attempts and approaches are more frequent, more sophisticated, and the vehicles used are more diverse”.
Massachusetts Attorney General Scott Harshbarger will unveil in May a joint community service program with American Express Co. 's American Express Financial Advisors unit to educate the elderly about consumer fraud. The announcement will be made at a two-day "elder summit" in Cambridge, Mass. , that draws attorneys general from across the country and is sponsored by Mr. Harshbarger's office and the National Association of Attorneys General. Mr. Harshbarger is president of the association.
It is hoped that the program, in which prosecutors and financial planners will meet with the elderly at senior citizens centers and other local agencies to talk about scams used to get their money, will be copied across the country, says Mr. Kogut.
"Prosecution alone will not solve this increasing problem," he says. "We need to reach out to elders directly and educate them. "
The North American Securities Administrators Association is developing a uniform competency examination for each state to administer to make sure financial professionals know something about their business besides memorizing state laws. Ron Thomas, head of the group's financial planners and investment advisers committee, compares the lack of a competency exam to taking only the written exam for your driver's license. “You know rules of the road, but can you drive an automobile?” asks Mr. Thomas, who also is director of Virginia's securities division.
The new focus on the post-retirement elderly is leading some financial-services providers to affiliate with social workers, elder law attorneys and accountants. These specialists help them develop a more complete picture of their clients' lives as part of the financial-planning process.
Massachusetts Financial Services, a Boston mutual-fund group, is hosting workshops for its network of brokers on how to discuss life issues with clients, and is encouraging them to gather lists of accountants, lawyers and social workers to whom clients can be referred.
“I would love to say it was all philanthropic,” says Jerry Potts, an MFS executive vice president, who explains that the company initially saw the potential for bigger business in the trillions of dollars that today's aging parents are expected eventually to transfer to their children.
But the effort has developed into more than a way to gain new customers, Mr. Potts says, because it is, “The right thing to do. This is what society is going through. We do a good job at talking to people who are under 65, but then what do we say? Good luck and have fun at golf?”
In other cases, though, financial sales people are claiming a specialty without having the expertise.
“I don't see too many really rolling up their sleeves and getting into it,” says Joan Gruber, a Dallas financial planner who works only with elderly clients and their adult children. “I don't see the expertise. They might have a cursory overview, but when they use the terms Medicaid and Medicare interchangeably, I know they are not really in this market. ”
So how do you find a professional who is serious about working with the elderly? Look for those who are adding other professionals to their staffs, such as social workers, nurses or lawyers, or are forming alliances with them.
Chris Cooper has been a financial planner for 15 years and is a former nurse. Four years ago, he added another business to his Toledo, Ohio, practice, ElderCare Advocates Inc. , a geriatric care management firm that assesses clients’ living conditions, medical needs and emotional states. “Some of the biggest issues are isolation, depression and the need for support services. I found I was already doing this work as part of financial planning,” Mr. Cooper says.
The Rev. Horace Huse and his wife Jo Ann, of Maumee, Ohio, became Mr. Cooper's clients because they wanted a planner to help them and Mrs. Huse's 84-year-old mother financially as well as psychologically and spiritually. All three had a hodgepodge of investments as a result of working with different brokers.
“Chris knew he had to sell us on a trust issue," says the 66-year-old Mrs. Huse. “He knew we had jumped so many times and that we had gotten hurt”.
Check with local agencies that work with the elderly to see if they’ve dealt with the professional you are considering. Interview several.
Ask if the adviser has done course work or continuing education in gerontology or financial planning for the retired. Check credentials. A law degree, a masters in business administration or a certified public accountant designation is useful, says Marc J. Lane, a tax attorney whose Marc J. Lane Elder Law Center is a financial planning and law firm in Chicago that caters to elderly investors.
“I would be leery of planners who are camouflaged, stockbrokers or insurance agents,” Mr. Lane says. “In reality, they are in it for the sale of financial products rather than addressing the needs of a client. ”
Get details on fees and compensation. It may be comforting that planners are affiliated with other professionals, but you pay for those services. Planners typically charge by the hour. You also pay an annual fee for investment management. Ask for what's called an ADV form. That means the adviser is registered with the Securities and Exchange Commission. Ask for both part one, which details any disciplinary actions and part two, which outlines how the adviser is compensated. A geriatric care manager, typically a nurse or social worker, may charge $100 an hour or more. Elder law attorneys cost $200 an hour in major cities, but some may offer flat fees.
Once you've signed on, how can you spot abuse?
A popular scheme is advisers using a client's money for personal use, says Mr. Thomas of the state regulators' association. Check account statements to see that transactions went through as you discussed with the adviser. Don't write personal checks to an individual. If you have a big account, have another financial professional review it.
“It costs money to protect yourself. ” Mr. Thomas says.
If an adviser files your taxes, pays your bills and handles your financial planning and securities transactions, it's tougher to spot wrongdoing. “It never hurts to have a little more independence,” he says.
When adult children get involved in their parents’ finances, it is crucial to establish upfront who is the client. Ms. Gruber, the Dallas planner, says conflicts of interest may arise. Children may feel they are the clients because they are paying the bills for financial planning and legal services, or they may have different ideas on how to handle their parents' assets.
“I need to stop and think, “Who is this going to benefit, you or your Mom?” I make it clear that your mother is the client, but I'm working with you,” she says.
Source: The Wall Street Journal: Money And Investing,
Your Money Matters Weekend Report, March 28, 1997