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When you're looking for financial advice, it can be tempting to trust the first so-called expert who comes along. Unfortunately, supposed financial pros who aggressively solicit your business may only want to take advantage of you.
Cons and fraud
Most con artists aren't sitting in an office, waiting for victims to arrive. They don't have solid credentials or membership in a reputable group such as the National Association of Personal Financial Advisors. And -- this kinda goes with the whole "con artist" thing -- they're not required to abide by any fiduciary standard. In short, that means they have no obligation to recommend investments that are best for you, and every incentive to think first and foremost about the commissions they'll earn from selling you investments you may not need.
These swindlers love to prey on the least financially savvy among us, especially the elderly. Senior citizens get conned out of an estimated $2.6 billion each year. Nefarious solicitors often push problematic investments such as variable annuities or fixed indexed annuities, convincing their marks that these products can't lose. In the process, they gloss over critical downsides: mixed performances, high fees, and the fact that the investment will be locked up for long periods of time, with steep fees and penalties if the investor needs to cash out. And they definitely won't tell their targets about the many other, better, less restrictive options to address the same financial need.
Beware these common cons
"Life settlements" have unfortunately become many shady financial advisors' vehicle of choice. In this arrangement, you sell your life insurance policy's death benefit to another party, in return for cash up front. These plans can be a good solution for some people, but for others, getting a big lump-sum payment can mess up Medicare eligibility. Other people may be able to get accelerated death benefits directly from their insurer, avoiding any third parties. And even when a life settlement is the right choice, the person pushing it may not be offering the best value. In cases like this, a little research can help save your savings.
In the stock market, scam artists often try to push "penny stocks" -- dirt-cheap shares of extremely small and volatile companies highly vulnerable to outside manipulation. Swindlers woo prospective buyers with too-good-to-be-true promises of future performance; then, when a surge of investor interest drives the stock higher, the market manipulators sell their own holdings for a tidy profit, driving the shares back down again.
Beware of pushy people who call or email you and try to sell you stocks. If what they're selling were really such a great investment, odds are that the rest of the market would already know about it. Any investment that needs salespeople to urge you to buy it is already on shaky ground.
Seeking out the financial help you need on your own will leave you far less likely to run into a potential scam. Ask for recommendations from friends and colleagues you trust, or find a pro to help you via one the main professional organizations. Not all their members are equally smart or skilled -- but they'll all be less likely to rip you off.
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