Articles Posted in Elderly Investors

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How to handle the finances after the death of a loved one.

In September 2016, the Florida Office of Financial Regulation issued a Consumer Alert titled “Managing Finances After the Death of a Loved One.”   The alert makes a number of helpful recommendations to take following the death of a family member or loved one including:

  • Gathering important documents such as wills, Social Security cards, insurance plans and brokerage account statements.
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In our law firm, we frequently represent elderly clients in claims against brokerage firms and financial advisors.  These claims usually include allegations that the broker took advantage of the elderly client, or recommended improper investments that benefited the broker more than the client.

Why and how do the elderly become so vulnerable to stockbroker abuse?  Some of the answers may surprise you.

Isolation and Loneliness  We have seen, over and over, elderly clients who are isolated and lonely.  We practice in South Florida, a haven for elderly retirees.  Many times, our clients’ families and loved ones live thousands of miles away.  On a day-to-day basis, these clients have very few friends or social interactions.

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As the investing population ages, it becomes more and more likely that investors will suffer failing physical and/or mental health.  Your permanent – or even temporary – incapacity could make managing your own investment accounts impossible.  One potential preemptive solution is for you to give a power of attorney (POA) to a family member or trusted friend for your investment accounts before you become incapacitated.

A POA is a legal document that permits the person you name to make decisions on your behalf.   The person who is named in your POA is called your “attorney-in-fact.”  Giving someone else control over your finances shouldn’t be done lightly. Yet, it can be vital if you unexpectedly become incapacitated because of a stroke, auto accident, or other unforeseen event.

Here are a few things to consider before you grant someone else power over your investments:

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Last spring, FINRA launched a Securities Helpline for Seniors – known as HELPS – as a resource for senior investors with questions and concerns.  With the country’s growing population of senior citizens, who are often targeted in fraudulent and deceptive investment schemes, the HELPS line is just another resource in FINRA’s recent push to protect our aging population.

The HELPS line launched on April 20, 2015, and through December 2015, more than 2,500 calls had been placed through the hotline.  The average age of the caller was 70 (though the actual age range was 22 to 100), and the calls lasted an average of 25 minutes each.  In 2015, HELPS staff assisted callers in recovering $750,000 in voluntary reimbursements from securities firms.

FINRA is also using data collected during calls to assist it with its regulatory goals.  By tracking trends in the calls placed to the hotline, FINRA can more readily issue Investor Alerts on topics of current interest.  For instance, after a spate of calls about transfer on death accounts, FINRA issued an Investor Alert about that specific topic.

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The TV is full of upbeat ads pitching reverse mortgages as an easy, cost–free way to generate income.  What many ads don’t say, is that reverse mortgages come with risk, including the risk of foreclosure.

A reverse mortgage is a type of home equity loan that is only available to elderly borrowers, typically age 62 and older.  The borrower must own their home free of any existing mortgage, or have a mortgage that is small enough to be paid off with the reverse mortgage proceeds.  Typically, there is no income requirement or need to have a certain minimum credit score to qualify for a reverse mortgage.  Homeowners remain responsible to pay all taxes, insurance, and maintenance on the property during the loan period.

Once the homeowner/borrower moves or dies, the reverse mortgage loan becomes due.  The property will mostly likely be sold, the lender will take its share, and any remaining balance of the sale proceeds is paid to the heirs.

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During the month of October, the Florida Department of Financial Services will be presenting free Operation S.A.F.E. workshops throughout the state to seniors, their family, and caregivers. The workshops aim to inform seniors on the many tactics scam artists use to steal their hard-earned money.

Operation S.A.F.E (Stop Adult Financial Exploitation) is a multi-division outreach initiative led by CFO Jeff Atwater and the Florida Department of Financial Services designed to protect Florida’s seniors from financial fraud and scams through education.

The program will discuss how scam artists think, who is at risk, how to fight identity theft, and where to go for help if you suspect fraud.

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Following the recent announcement by the Federal Reserve that interest rates are expected to remain low until at least 2014, the North American Securities Administrators Association (“NASAA”) issued a warning to investors to be cautious about investments offering higher returns. The NASAA cautioned that investors should not abandon their slower growing, safe investments in favor of higher yielding alternative investments without fully understanding the risks and terms of the alternative product.

State securities regulators are concerned that individuals who depend on fixed income investments, especially seniors, may be more easily persuaded by unscrupulous salespeople to invest in inappropriate, risky investments or fraudulent schemes. The NASAA’s current list of “Top Investor Traps” includes private placement offerings, promissory notes, securitized life settlement contracts, and investments in energy, distressed real estate and precious metals, which may be frauds in disguise.

Investors should remember that risk and reward are tied together. Investments with higher returns carry a higher degree of risk to investors; the lower the return, the lower the risk.

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The Financial Industry Regulatory Authority (FINRA) announced that is has fined Wells Fargo Investments, LLC (Wells Fargo) $2 million related to the sales of unsuitable reverse convertible notes to elderly customers. The sales were made by one of Wells Fargo’s former brokers to 21 customers, most of whom were in their 80’s and 90’s.

Reverse convertible notes are complex structured products that consist of a short-term, interest bearing note in which repayment of the principal is linked to the performance of an unrelated asset such as a stock or basket of stocks. If the underlying asset falls below a certain level, an investor risks incurring a substantial loss.

According to FINRA, the investigation revealed that the broker recommended hundreds of unsuitable reverse convertible notes to 21 unsophisticated, elderly clients with a low-risk tolerance which exposed the customers to risk inconsistent with their investments profiles. FINRA also stated that the sales of the reverse convertibles generated in excess of $1 million in commissions to the broker and firm. According to FINRA, Wells Fargo failed to review the reverse convertible transactions to make sure they were suitable for the customers.

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The Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 11-52 (Notice) reminding its member firms of their supervisory obligations regarding the use of designations by their brokers that imply expertise, additional training or a specialty in advising elderly investors (senior designations).

In early 2011, FINRA surveyed 157 brokerage firms regarding the use of senior designations and the supervisory procedures in place regarding the use of such designations. 68% of the firms surveyed indicated that they permit the use of senior designations. Of those, only 66% required approval and verification of a broker’s credentials prior to the use of the designation. The remaining 34% of firms did not verify the credentials of the brokers using the senior designation. In some instances, widely used senior designations did not require rigorous qualification standards.

According to the Notice, FINRA is particularly concerned that “the existence of qualification standards to obtain a designation did not ensure that those registered persons holding the designation possessed financial services skills that were unique or valuable to senior investors.”

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It is estimated that one out of every five Americans over the age of 65 have been the victim of a financial scam.

Now, help for potential financial swindle victims has arrived. A national toll-free hotline for seniors and adult children of the elderly will be launched on November 10 to provide seniors with advice on general financial matters as well as ways to prevent becoming the victim of financial fraud. Of particular concern are seniors with mild cognitive impairment who can perform most daily functions, but have trouble with managing their finances.

The hotline is a collaboration of the National Adult Protective Services Association (NAPSA), the Financial Planning Association (FPA), the Investor Protection Trust (IPT) and the Investor Protection Institute (IPI).