Bad News Anniversary

Five years of low interest rates leave savers ripe for scams

As anniversaries go, this one is a doozy. This fall marks the fifth anniversary of the longest and most accommodating spell of monetary policy in the history of the United States, with the federal funds rate about as low as it can be— 0.25% annually.

For retirees and savers, there’s little to celebrate. Low interest rates have devastated many retirement plans, forced individuals into riskier investments to try to maintain the earning power of their savings, and inadvertently spurred a dramatic increase in investment fraud.

While fraud is nothing new in the financial markets ( witness Bernie Madoff’s massive twenty- plus- year embezzlement), a lack of income opportunities has made many individuals more vulnerable to the promises of “safe” investments with “respectable” income. We’ve been taught over the years to be suspicious of promises of excessive returns, but somehow 8% doesn’t sound like an obvious con. Unfortunately, it often is in today’s financial environment.

Some of the most common investment frauds today fall into the following areas, according to the North American Securities Administrators Association: 1. Investment pools targeting

distressed property 2. Energy investments 3. Gold and precious metals offers 4. Unregistered or fraudulent

promissory notes 5. Securitized life- settlement contracts marketed under the implication of less risk and guaranteed returns 6. Affinity fraud, i. e. marketing a Ponzi scheme to members of a particular group 7. Increased use of bogus or

exaggerated credentials 8. Claims of mirror trading investment transactions placed or executed by a skilled and knowledgeable third party 9. Private placements 10. Advice from unlicensed agents

Florida, with its high percentage of retirees, is a prime market for con artists. Many victims are successful, financially astute investors, and their vulnerability points to the sophistication of investment fraud today.

The obvious red flags to look out for include:

Guaranteed return. The closest you are going to come to a guaranteed return is a bank CD, currently offering only pennies on the dollar. Every investment has risks.

Reciprocity. Free investment seminars are gambling on your better nature and that in exchange for a small favor, such as a free meal, you will feel you owe the individual and will invest in their pitch.

Pressure to invest right now. There will always be another opportunity to make money as long as you haven’t lost your money to a bad investment. Resist any pressures to invest immediately.

The problem with the obvious red flags is that good con artists can read. They are aware of what warnings consumers receive, which is where more devious techniques come in.

One of my favorites is the hot investment recommendation. The “investment professional” calls or e- mails you with a hot investment tip. The message: Keep an eye on this one, I think it is ready to take off. Sure enough, it does, as do the next four tips. By the time the fifth investment tip comes along, you are ready to buy. What you don’t know is that the “professional” started with a list of 100,000 and ten to one hundred different stock tips. Individuals who received losing “tips” were never called back. By the time you receive your fifth investment tip, the list may be down to one hundred or fewer potential investors who have consistently received winning investment tips, albeit by accident.

Then there’s the unattainable investment. You are told about this great opportunity, but also that you are not going to be able to get in due to strict qualifications, limited new openings, or oversubscription. Finally, as a great favor to you, an “opportunity” comes up— only to turn out to be a very expensive mistake on your part.

What can you do to help avoid being scammed?

• First and foremost, never write a check or transfer money to an individual. If a legitimate custodian or broker- dealer is not involved, don’t invest.

• Ask questions. Do your own independent research. The Internet is a wonderful resource, but look beyond the obvious company or individual Web sites. Search news articles, regulatory agencies, and industry sites.

• Know the salesperson. What is their past job history? Are they qualified to offer investment advice? Are they registered to sell securities in your state? Check the SEC, FINRA, state securities administration, and Better Business Bureau databases for complaints. Ask for references.

Take time, do your homework, and don’t let desperation for better returns jeopardize your savings.