By Ylan Q. Mui, Published: April 19
Senior citizens are being lured into riskier investments — and often outright scams — as carefully laid retirement plans have been scuttled by five years of low interest rates.
Government regulators and advocacy groups say unscrupulous dealers are taking advantage of a growing fear among seniors that they will run out of money in their final years of life. That’s in large part because many seniors have parked their cash in safe investments, such as government bonds, where returns have barely kept pace with inflation. As a result, their savings are stagnating as their life expectancy grows — and that is making many older Americans increasingly desperate.
In Georgia, state regulators nabbed a man last year who bilked seniors out of nearly $16 million by promising to generate high returns with investments in foreign currencies. In South Carolina, regulators are pressing charges against a former insurance agent who they say was able to scam 17 people out of more than $1 million by advertising certificates of deposit with returns of just 4 percent. A similar scheme in Virginia attracted more than $11 million from seniors hoping to beat bank interest rates that have fallen below 1 percent.
“What we really have now is a combination of the fraudulent seller with the needy buyer,” said A. Heath Abshure, commissioner of the Arkansas Securities Department and president of the North American Securities Administrators Association. “Right now, because of interest rates, the fraudulent sellers aren’t having any issues finding a buyer who wants to believe the lie.”
On Thursday, the federal consumer watchdog agency called for greater transparency in the way financial advisers market themselves to seniors.
The Consumer Financial Protection Bureau found that such advisers claimed more than 50 types of “senior certifications.” Some require college-level course work, while others can be obtained in a weekend. The CFPB said that more-rigorous standards for training and conduct as well as greater supervision of these advisers are needed.
CFPB Director Richard Cordray said that during roundtable discussions across the country, he has been struck by the vulnerability of many older Americans.
“Seniors may assume that a financial adviser has their best interest at heart, when that is not necessarily the case,” he said. “If they fall prey to a scam, they may be too embarrassed or too frail to pursue legal action.”
Seniors have long been a favorite target for fraudsters. People 60 and older make up 15 percent of the population but are estimated to account for 30 percent of investment fraud victims, according to AARP. They are more likely to have lump sums of easily accessible cash, a lifetime of savings intended to last through their golden years. Many seniors use the interest on those savings to cover their daily expenses and maintain the nest egg for emergencies or inheritance.
But that has gotten harder to do in the aftermath of the financial crisis. The Federal Reserve began slashing interest rates in 2008 and has kept them near zero ever since in hopes of stimulating consumer spending and boosting the economy. The effort has paid off in many ways, spurring a rebound in housing and a pickup in construction hiring.