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Fraud against seniors rises, panel is told

Investment advisors often lack proper credentials, regulators tell Senate committee.

September 06, 2007|Kathy M. Kristof | Times Staff Writer

They come bearing impressive credentials, such as "Certified Senior Advisor" and the "Seal of Trust." But when they go, many of these advisors leave the life savings of seniors locked in inappropriate and costly investments, regulators told a Senate panel Wednesday.

William Francis Galvin, Massachusetts' secretary of the commonwealth, told the U.S. Senate's Special Committee on Aging of "a widespread pattern of purported senior specialists using sophisticated marketing tools to give senior citizens the impression that they are acting as their unbiased, knowledgeable and independent advisor, when the real objective is to convince them to purchase a product that the specialist offers."

Often the investment acquired is a high-commission annuity that is unsuitable for senior citizens because of lengthy lock-up periods and large surrender fees to pull money out early, Galvin said.

Seniors are believed to be vulnerable to fraudulent investment pitches for a variety of reasons, including a high incidence of cognitive ailments and an upbringing that makes many seniors too polite to hang up on an aggressive, cold-calling salesperson. Con artists have targeted that vulnerability for decades, but the problems may be getting worse.

A survey by the North American Securities Administrators Assn. suggests that fraud against seniors has risen 44% in the last year, said Joseph Borg, the organization's president.

About 28% of all investor complaints received by the group in 2005 were from seniors.

The latest trend in conning the elderly involves coupling free meals with meaningless but impressive-sounding designations, speakers testified. Letters and postcards promoting the events promise "no cost," "no obligation" and "nothing will be sold," Borg said. The pitch comes a few days later in a follow-up call from a so-called senior specialist.

What makes these salespeople "specialists"? In some cases, they have filled out a five-minute online application with the National Ethics Bureau, a for-profit company that purports to certify a salesperson's ethical caliber with its "Seal of Trust," Galvin said. One salesman who had been awarded the seal had a long record of regulatory sanctions, customer complaints, liens and a bankruptcy. Another had been fired by his broker-dealer for selling unapproved products.

The "Certified Senior Advisor" moniker issued by the Society of Senior Financial Advisors also is "primarily a marketing tool" that doesn't require meaningful training, Galvin said. The society defended its training and designation in testimony to the panel but said its program didn't qualify anyone to give investment advice.

"Our office has been flooded with countless stories of harm to seniors resulting from the unscrupulous use of these questionable credentials," Galvin said.

Massachusetts recently adopted a regulation that bars broker-dealers and financial advisors from using a designation that has not been accredited by a reputable national accreditation organization. Other states have no such measures.

The organization of state securities regulators intends to adopt a "model rule" that states would be encouraged to enact, but that process could take years.

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