SMART MONEY
BY LISA FREEDMAN
THERE’S THIS CANCELED check for $75,000 that’s burned into my memory. The elegant swoops of my mom’s handwriting, the neatly rounded zeros, the incredible permanence of the ink. Though it had been written (and cashed) years before, I saw it for the first time in April 2020. My father had just died unexpectedly, and my world was crumbling. Heartbroken and sick with grief, my brother and I were doing the financial excavating you take on after a parent passes away. We needed to figure out: Would our mom be OK?
Combing through the paperwork, we found all sorts of statements, slips, and emails. I don’t know the exact moment we uncovered this little piece of paper (turns out, everything does become a blur when you’re in shock) or why we had a bad feeling about it immediately. What I do know now, and what has become a very painful part of my family’s story, is that most of that money is gone.
The check was written out to a company I soon learned was being investigated by the U.S. Securities and Exchange Commission (SEC) for lying to investors. In a nutshell, the company claimed to have invented some kind of medical technology (it hadn’t) that insurance companies were interested in (they weren’t), and it was looking for investors. My parents found this company through a financial adviser airing an ad on local Philadelphia radio, enticing listeners with a seemingly guaranteed 10% annual return.
Here’s where I start kicking myself: I remember my dad telling me about this. My parents were attending a free luncheon to learn more about this guy’s offerings, he told me years ago.
“You and Mike should really go to one of these,” he said, with genuine concern for my marital finances. I told him there was no such thing as a free lunch. He never said anything else about it. And I never followed up.
Consumers reported losing nearly $8.8 billion to fraud in 2022, according to the Federal Trade Commission.
The fact that I didn’t do more haunts me. Could I have said something to persuade them to stay home that day? Should I have gone with them? I definitely should have followed up. I always thought my parents were amazing with money—they’d taught me so much about it. My dad had a long career running software for manufacturing companies. My mom didn’t work much but also didn’t spend lavishly. They were comfortable and conservative, good savers who lived below their means. I’d sat through their “Here’s where all our money is” speech at some point, and it looked fine enough. There was money! It never even occurred to me they could be victims of a scam.
Sometimes I play a not-so-fun game with myself where I imagine the headspace they must have been in to give this guy money. They were probably so excited. So proud of finding such a great deal. So hopeful. So excited about what it might mean for their two kids. Ultimately, they wrote a few more checks to this BS company and other “opportunities” brought to them through their so-called adviser, the very guy they’d heard on the radio. Meaning: They lit a giant chunk of their life savings on fire.
My mom is going to be fine. (Hi, Mom, you’re scrappy and resilient and you’ve got this!) This was a lot of their money, but it wasn’t all of their money. She’ll have to make adjustments and stick to a budget, but she can stay in her home, feed herself, and live her life (tragically, without my sweet and ridiculously funny father). She has gotten a little bit of the money back and might get even more, if the courts and stars align. Still, I obviously wish none of this had happened.
So do plenty of other families. According to SEC filings, at least 50 optimistic investors wrote checks to that bogus medical company. And that’s just one scam, by one radio pitchperson (who’s since been investigated by the SEC and ordered to pay multiple fines). In the grand scheme of scams, consumers reported losing nearly $8.8 billion to fraud in 2022— a more than 30% increase over 2021—according to the Federal Trade Commission. People like my parents’ scammer often prey on retirees, and there are new and innovative tricks popping up every day. (AI can now mimic the voices of loved ones in distress, begging for money over the phone, just to give one horrifying example.)
Because I’ve had to deal with the depressing and enraging reality of a shady financial planner, I want to make sure you don’t have to. So I called up some top experts for their best advice. Here goes.
Anyone can call themselves a financial planner or some version thereof. “You can take a weekend class, and now you’re a retirement-planning specialist,” says Lori Schock, director of investor education and advocacy at the SEC. So even if someone touts impressive sounding credentials, it’s best to look into them, Schock says. There are a handful of good certifications (the CFP Board, for example, has rigorous standards for becoming a certified financial planner), but it’s hard to know what’s legit and what isn’t. Your best bet? Do a free background check on investor.gov. The SEC-operated database will pull up any licensed investment adviser registered at the federal or state level, along with any broker dealers registered with the Financial Industry Regulatory Authority (FINRA). It’s a one-stop shop, and Schock says she wouldn’t turn over her hard-earned money to anybody not listed there. Yay: Everyone in this database is legally obligated to act in your best interest. This simple search will also reveal how long someone’s been in the biz, where they’ve worked, if there have been any complaints filed against them, and more. “Check it once a year, just in case something new has popped up,” Schock says.
While some old-school companies might still throw lunch or dinner seminars, these tactics are often used in cons. In fact, the SEC, FINRA, and North American Securities Administrators Association (NASAA) reviewed 110 seminars that took place between April 2006 and June 2007 and found rule violations (including misleading or exaggerated claims, unsuitable recommendations, and possible fraud) at a whopping 78% of them. Even in 2023, the problems persist, says Amanda Senn, director of the Alabama Securities Commission and a cochair of NASAA’s enforcement section.
“There’s always this urgent pitch, and you’re not provided enough information given the small window of time,” she says, adding that the speakers often try to rush you (which I’ll get into). And because we’re nice human beings, we tend to feel bad saying no after someone has bought us lunch. Cary Carbonaro is a certified financial planner and CFP Board ambassador and says she’s never had to buy somebody lunch to secure a meeting. “You are really bad at your job if you have to pay people to come listen to you.” Harsh? Yes. Inaccurate? Not really!
It’s a simple question that should be easy to answer—unless you’re a fraudster, in which case you might give a roundabout reply. Pamela Rodriguez, a certified financial planner and member of the Financial Review Board for Investopedia (which shares a parent company with REAL SIMPLE), has a very clear response: “I don’t charge commissions of any kind. I also don’t take cuts from other advisers or any kind of kickbacks from investment companies.” Any of those things could bias her recommendations. “If they say there’s no cost to work with them, that’s a red flag too,” Carbonaro says, because it means they’re selling products just for the high commission, or they’re hiding their fees, or both. There are different services and various ways to be charged, including a flat-rate fee or an annual fee (often around 1% of the money you invest). Your adviser should be able to show you a breakdown of what you’d be paying for.
Whether you’ve had one meeting or five, take a look back. Did they fail to ask you a single question about your goals? Were they pushing particular investments? Were they rushing you? You guessed it—these are all red flags, says Gerri Walsh, senior president of investor education at FINRA. “A big part of the job is understanding the client,” she says, noting that plans should be tailored to your goals. Your planner should ask when you hope to retire, what you want retirement to look like, what sorts of big purchases you hope to make, and so on. Also, anything that inspires FOMO is inappropriate: “In financial planning, there’s really no life-or-death situation,” Carbonaro says. “It’s whenever you’re ready.”
“We end every financial education program by telling people, ‘If you’re presented an investment opportunity, ask a trusted friend or family member about it,’” Senn says. Walsh agrees on getting a second (or third) opinion. “The fraudster’s goal is to put you in an emotional state where you’re not thinking rationally. And they do that by dangling false riches, claiming to be experts, giving you a free meal, making you think you’re going to miss out, and similar tactics,” she says. To see the opportunity in a new light, try explaining it to people you trust who haven’t heard about it. Do they notice any red flags? Do they have simple questions you can’t answer?
“There’s no such thing as get rich quick. There’s only get rich slow.”
“There’s no such thing as get rich quick. There’s only get rich slow,” Carbonaro says. Also, when it comes to investing, there are no guarantees. Ever. So if someone tells you something is risk-free, they’re lying, Walsh says. You can check investment products or investment offerings using the SEC’s Edgar database, at sec.gov/edgar. It lets you look up any registered investment opportunities, like mutual funds, exchange-traded funds, and variable annuities. Don’t see what you’re being sold in the database? Then it’s not registered, and you should be wary and do more research. Ask for additional paperwork and, as obvious as it seems, search online to see if anything fishy comes up. Oh, and as for the sort of medical scam my parents fell for, it’s unlikely a company you’ve never heard of has, say, cured cancer, Senn points out.
Let’s say you’re reading this and alarm bells are sounding. (I’m so sorry!) Take a breath and follow this advice from Walsh: “Complain, complain, complain.” Call your state securities regulator, the SEC (800-732-0330), or FINRA (844-574-3577). You’ll be pointed in the right direction to share any info you have. All credible claims are taken seriously and investigated—you can even call back to check on the status. “It’s important for people to speak up when they think there’s customer harm happening,” Walsh says. “Your complaint might be the first indicator there’s a problem, and the problem might be deeper than just you.” You could save yourself, or your parents, or someone else’s from being scammed. Just like my mom, you’ve got this.