SENATE SPECIAL COMMITTEE ON AGING INVESTIGATES "SOURCE CREDIBILITY" SCAM AGAINST ELDERLY INVESTORS
by Lawrence C. Melton, Esq., lmelton@dhayeslaw.com
THE HAYES LAW FIRM, www.dhayeslaw.com
(After the initial publication of the following blog, a representative of Certified Senior Advisors contacted me. He objected to my use of the term "phony" and said: "We are very clear--and have the only disclosure statement in the industry that underscores our position--that the CSA designation is a supplement, not a substitute, for a professional's other licenses, credentials and education. To suggest otherwise is inaccurate.")Yesterday the U.S. Senate opened an investigation of the "source credibility" investment scam perpetrated against senior citizens. The "source credibility" scam is a growing trend in the securities and insurance industry. Financial Advisers are obtaining phony official-sounding titles in order to trick seniors citizens.
(See Charles Duhigg, Senate Panel Investigates How Insurers Sell to Elderly, July 20, 2007) http://www.nytimes.com/2007/07/20/business/20adviser.html?_r=2&ref=business&oref=slogin&oref=slogin
(See Gary S. Mogel, Senate eyes insurer sales to seniors, July 20, 2007) http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20070720/REG/70720025 Earlier this year the NASD published NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors, which classified and labeled the common tactics employed by brokers during a sales pitch. One such tactic is the source credibility tactic:
The "Source Credibility" Tactic--trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."
NASD Investor Alert: Fraud Fighting 101: Smart Tips for Older Investors.
HOW DOES THE SCAM WORK?
STEP ONE: A financial adviser working for an insurance company will pay a certain amount of money for a correspondence course to obtain an official sounding title. The course might take a couple of days or maybe a couple of hours. Then the adviser takes an easy multiple choice test and obtains the phony title.
STEP TWO: The financial adviser will use one of the above impressive-sounding titles to trick senior citizens into believing he has credentials and expertise. In reality the adviser may be an inexperienced novice in this area who simply took a phony on-line correspondence course.
STEP THREE: Once the adviser has fooled the senior into believing he is an expert, the adviser will earn big commissions by placing the senior in a bad investment, such as a deferred variable annuity.
When asked who the most common victim of securities fraud is, attorney Debra Hayes of The Hayes Law Firm said:
"It's typically the elderly, those that are retiring or are retired. In this day and time, many, many people are retiring at the age of 55 and that's not what we would normally think of as elderly. However, I would say that the victims tend to be from age 55 and up. The common sentiment is that people hire a broker that they trust and then they rely on them and accept their recommendations.
Many employees that are retiring meet with a broker that their company chooses. They're very trusting in that type of a situation and think, "Oh well, my company let this person speak to us, they must know that they're a good person. They must know what they're talking about."
These brokers are extremely good salesmen, which is what they are, salesmen. They really are not financial analyst, in my opinion, but they claim they are. So again, those that fall victim to that the most often are 55 and over, retirees and elderly people."
The Senate Special Committee on Aging is in the process of investigating Old Mutual Financial Network, Allianz Life, American Equity Investment Life Insurance, Society of Certified Senior Advisor's, Piece of Pie Strategic Coaching, and Senior Insurance Training Services. Senate hearings on the subject are expected in September. (See Charles Duhigg, Senate Panel Investigates How Insurers Sell to Elderly, July 20, 2007) (See Gary S. Mogel, Senate eyes insurer sales to seniors, July 20, 2007).
The "source credibility" occurs when the insurance company rep or the financial adviser tells the client he or she is an expert and then provide a phony official-sounding title. The NY Times provided a list of several of these phony titles to be on the look-out for:
- Certified Senior Adviser
- Certified Elder Planning Specialist
- Registered Financial Gerontologist
- Certified Retirement Financial Adviser
- Certified Senior Adviser
(See Charles Duhigg, Older Investors Swarmed by "Instant Experts").
THE HAYES LAW FIRM, www.dhayeslaw.com, phone number 1-866-332-3567
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