TDCI Securities Division Reminds Consumers That Social Isolation May Increase Risk of Financial Exploitation
Ahead of National Senior Fraud Awareness Day on Saturday, May 15, the Tennessee Department of Commerce & Insurance’s (TDCI) Securities Division reminds Tennesseans that social isolation, whether voluntary or involuntary, has a direct contribution to the financial exploitation of older investors.
“While financial abuse can happen at any time, perpetrators often strike during times in a senior’s life when they may be more vulnerable, such as during a health crisis or after the death of a loved one,” said TDCI Assistant Commissioner Elizabeth Bowling. “Scammers often gather personal details from obituaries and social media posts and use this information to target their victims. Some also may attempt to exploit trust within seniors’ social and support groups to become more involved in their lives.”
The Government Accountability Office has estimated that seniors lose an estimated $2.9 billion annually nationwide to an ever-growing array of financial exploitation schemes and scams. The Federal Trade Commission estimates over $40.6 million in total consumer fraud losses occurred in Tennessee during 2020 – with identity theft being the top type of fraud complaint.
Unfortunately, senior fraud is often underreported by victims due to embarrassment and lack of information about where to report fraud. Social isolation and diminishing cognitive capacity can combine to affect the judgment and decision-making capacity of senior investors – rendering them more vulnerable to financial abuse. Over the past year, with many seniors in isolation during the heart of the pandemic, seniors were even more vulnerable to financial abuse.
Recent research from the FINRA Foundation found that people are more likely to be victimized if they are isolated and do not have anyone to discuss an investment proposal with. As a result, those who engaged scammers and lost money are less likely to be married and more likely to be widowed or divorced. Sadly, fraud victimization seems to go hand-in-hand with social isolation – whether involuntary or voluntary. Common scams can range from Ponzi schemes to identity theft.
Social isolation and diminishing cognitive capacity can combine to affect the judgment and decision-making capacity of senior investors, rendering them more vulnerable to financial abuse. With many seniors in isolation over the past year for their own safety, friends and family are unable to physically check in and were not able to notice the sometimes small but important changes in behavior that could indicate a person is susceptible to fraud or worse, is being victimized.
“When seniors and others are socially isolated, they increasingly turn to the internet for social interaction and more frequently depend on the internet as a social outlet and are increasingly relying on online services for shopping, banking and the initiation of electronic payments that may have otherwise been paid in person,” said Bowling. “Research shows that people who are contacted by scammers through social media or through a pop-up message on a website are more likely to engage with the scammer and lose more money than those who were targeted by phone or email.”
Loneliness also leads some to look for companionship online. As a result, online romance scams have become increasingly pervasive because the scammers can easily use the anonymity of the internet to mask their deceptive intentions.
So how can you help?
How to Help the Seniors in Your Life
Social isolation increases vulnerability to financial exploitation and fraud. That is why it is important to keep seniors socially and mentally engaged.
- If in-person visits are not possible, you can still keep in touch with older family members, friends, and neighbors. Call or leave a note on their front door. If they have the technology, send them a text or email, or connect through video conferencing. Contact is key to letting your loved ones know you are thinking of them and that they are not alone.
- Let your older family members know that fraudsters and scammers have found ways to exploit the COVID-19 pandemic and recovery. Make them aware of the red flags of fraud and common scams, which remain consistent over time. Send them updates on current scams targeting older people.
Individuals with suspicions of possible senior investment fraud or financial exploitation should contact: Tennessee’s Securities Division by calling 615-741-5900 or visiting tn.gov/securities, local Adult Protective Services agencies, FINRA or the SEC.
Presentations on how to spot and report suspected senior financial exploitation are also available from the Securities Division at no charge for financial and investment professionals, community groups and other organizations. Click here to request a speaker today.
When it comes to identifying suspected senior fraud, this type of financial exploitation can oftentimes be difficult to recognize – below are some common warning signs
Common Warning Signs of Senior Exploitation
- Family members or those who insert themselves into a senior’s life to act like “family” to extract money for loans or expenses.
- A new and overly protective friend or caregiver.
- Surrendering passwords to financial accounts or control of finances to a new friend or partner.
- Fear or sudden change in feelings about somebody.
- A lack of knowledge about financial status or new reluctance to discuss financial matters.
- Sudden or unexplained changes in spending habits, a will, trust or beneficiary designations.
- Unexplained checks made out to cash, unexplained loans or unexplained disappearance of assets (cash, valuables, securities, etc.). Also, watch for suspicious signatures on senior’s checks or other documents.
So how can you protect yourself and loved ones against investment fraud? Below are some tips, recommendations and fraud red flags to be aware of.
How to Protect Yourself from Investment Fraud
- Ask for input from others. Scammers try to isolate their victims. Do not be afraid to contact a friend, a company or organization you trust for advice.
- Do additional research before sending any money. One easy action: Do an internet search to see if the website or pitch has been flagged as fraudulent or potentially fraudulent by news organizations or members of the public. Make sure you understand the investment, the risk attached and the company’s history. And remember, if the investment sounds too good to be true, it probably is.
- Focus on your financial health and literacy. Individuals under financial strain and those with lower levels of financial literacy may be more susceptible to scammers.
- Knowledge is power. Knowing about scams and scammer tactics can be your best defense in successfully reducing the impact of scams. Keep up with the latest frauds by subscribing to consumer newsletters and seeking out information on current scams. Fraudsters rely on the fact that many people simply do not bother to investigate before they invest. Savvy investors take the time to do their own independent research and talk to friends and family first before investing.
- ·Never be afraid to complain. If you suspect fraud or a questionable practice and the explanations that you receive are not satisfactory, do not let embarrassment or concern that you will be judged incapable of handling your own affairs prevent you from filing a complaint with the Securities Division.
Red Flags of Fraud
- Unregistered and unlicensed sellers. Always check whether the person offering to sell you an investment is registered and licensed, even if you know him or her personally. Unregistered and unlicensed persons commit many of the frauds that target older investors. Researching the background of the individuals and firms selling you investments, including their registration/license status and disciplinary history, is easy and free. You can verify the status of investment professionals using FINRA’s free BrokerCheck tool.
- You can also call the SEC’s Office of Investor Education and Advocacy directly to help research the person and firm selling you the investment: 800-732-0330 (open 9:00 a.m. to 5:30 p.m. EST Monday through Friday). FINRA’s Securities Helpline for Seniors® can also be leveraged to get assistance from FINRA or raise concerns about issues with brokerage accounts and investments. Call 844-57-HELPS (844-574-3577) toll free, Monday through Friday, 9 a.m. – 5 p.m. Eastern Time.
- Promises of high returns with little or no risk. The promise of a high rate of return, with little or no risk, is a classic warning sign of investment fraud. Every investment carries some degree of risk, and the potential for greater returns usually comes with greater risk. Avoid putting money into “can’t miss” investment opportunities or those promising “guaranteed returns.” Remember – if it sounds too good to be true, it probably is.
- Pressure to buy quickly. No reputable investment professional should push you to make an immediate decision about an investment or tell you that you must “act now.” If someone pressures you to decide on an investment without giving you time to do your research, walk away.
- Red flags in the financial professional’s background. Even if an investment professional is in good standing with his or her regulators, you should be aware of potential red flags in the professional’s background. SEC, FINRA and Tennessee’s Securities Division records can be used to identify red flags for potential problems, including: (1) employment at firms that have been expelled from the securities industry; (2) personal bankruptcy; (3) termination; (4) being subject to internal review by an employer; (5) a high number of customer complaints; (6) failed industry qualification examinations; (7) federal tax liens; and (8) repeatedly moving firms.
The list below contains additional resources on social isolation and senior investor protection:
- NASAA: Guarding the Guardians: The Red Flags of Guardian Financial Abuse
- NASAA: 10 Tips to Protect Your Nest Egg
- SEC: Ponzi Schemes Targeting Seniors
- SEC: COVID-19 Related Early Withdrawals from Retirement Accounts—Be Careful of Fraudsters and other Bad Actors Targeting Your Retirement Savings
- FINRA: Three Resources for Senior Investors
- FINRA: Please Consider Adding a Trusted Contact to Your Account
The information contained in this blog is for general guidance on matters relating to the Tennessee Department of Commerce and Insurance’s Securities Division and state securities regulations. The authors and presenters are not providing securities, legal, accounting, tax, or other professional advice and services. It should not be used as a substitute for consultation with your own professional securities, accounting, tax, legal or other competent advisers. The application and impact of laws can vary widely based on the specific facts involved. In no event will the Tennessee Securities Division be liable to you or anyone else for any decision made or action taken in reliance on the information in this presentation or for any consequential, special or similar damages, even if advised of the possibility of such damages.
North American Securities Administrators Association (NASAA). (2021). Social Isolation and the Risk of Investment Fraud. https://www.nasaa.org/56731/social-isolation-and-the-risk-of-investment-fraud/
Rachel Carden serves as the Director of Investor Education for the Securities Division of the Tennessee Department of Commerce and Insurance.