How to Protect Your Pension From Scammers

Protect your retirement money!

Millions of workers retire each year hoping that their pensions will be enough to last them for the rest of their lives. Unfortunately, in many cases, retirees will discover that their savings are insufficient to get them even close. Either their initial contributions were too low or else their rate of growth was not high enough to accumulate the funds needed.

To make matters worse, there are scammers in the world who are determined to separate unsuspecting consumers from their hard-earned money. Some of these hucksters are out-and-out criminals, while others may be unethical salespeople or brokers intent on making big commissions at your expense. Some of them work face-to-face, while others stalk their prey online or through the mail. Some of them specifically target pension holders and retirees, while others appeal to any kind of investor.

In any case, most use some form of emotional manipulation, whether overt or subtle. Many of them get to know their victims well in an effort to discover their emotional sensitivities, and then use guilt, greed, fear or pity to extract money from them. Older people who live alone are favorite targets of these scammers, because many of them are lonely and therefore vulnerable to someone who pretends to be their friend. Expert scammers know exactly how to push their victims' buttons and will often use intimidation as a means of getting money and then douse the victim with reassuring friendship once the check is received. Of course, this cycle is then repeated over and over until all of the victim's funds are depleted and he is left destitute. Sadly, many victims secretly know that their "friend" is a scammer but still send the money, because even false friendship is better than the crushing loneliness that they have faced for so long.

Not all scam victims are lonely or gullible, however. Bernie Madoff swindled high-net-worth investors for 20 years before he was caught, and Michael Millken was jailed for his role in the junk bond fiasco of the late 1980s. Prison terms were also meted out to several perpetrators in the Enron and WorldCom meltdowns, including some at the accounting firms who were helping corporate executives to "cook the books."

Fortunately, there are a number of things that you can to do protect both yourself and your loved ones from these predators. Several regulatory agencies are on the lookout for this type of criminal, and many of them have resources available for both real and potential victims. Scammers know that once they have been found out, they cannot contact that victim again, because their calls or emails may be traced and used to find them.

Here are some steps to finding the right adviser and a financially safe retirement.

Instructions

1. Talk to your human resources department or retirement plan custodian representatives before you take any action. Ask them if they are aware of any local scams or frauds that have been reported. They may know of specific scammers or con men who are preying on retirees in your professional or demographic category.

2. Verify the credentials and disciplinary history of anyone you consult for financial advice on your pension regardless of where you live. Whomever you speak with must be properly licensed as either a registered representative or a Registered Investment Adviser. Licensed life insurance agents are authorized to discuss and recommend life insurance and annuity products as well. Brokers and agents who market variable insurance products must carry both securities and insurance licenses.

3. Consider restricting your search for an adviser to someone who has earned a professional credential, such as a Certified Financial Planner or Certified Public Accountant (although this is not an absolute requirement). You may also want to stick to someone who has at least five years' experience working with pensions. Ask your adviser if you can talk to some of her other clients to see what their experience has been. Any broker or adviser worth her salt should be willing to grant you this request.

4. Evaluate with extreme caution any investment that lacks a written policy statement containing clearly defined objectives. Although this is not always a sign of fraud, it usually does denote a less-established, higher-risk investment.

5. Be wary of any adviser who promises exorbitant returns or results that sound too good to be true. For example, if a broker shows you an investment that is guaranteed to pay principal and interest that substantially exceeds what other guaranteed instruments are paying, then you can bet there is either a substantial catch or it is fraudulent.

   Don't hesitate to get a second or even a third opinion on an investment proposal. Your advisor should also be willing to disclose the risks involved in your investments clearly and proactively. Read any and all materials that are available on an investment, such as the prospectus, executive summary or ADV statement. Past and current financial statements should provide accurate indications of investment performance and cash flow. Also look for third-party evaluations, such as a Morningstar report for stocks and mutual funds.

6. If your gut feeling is telling you not to believe what you are hearing, then stay away from it. Remember the old rule: If something sounds too good to be true, then it probably is. If you think that you're going to lie awake at night worrying about your investment after you've made it, then don't do it. It's not worth it.

Tips & Warnings

• Your pension plan provider should be one of your main protectors in this matter and should also make sure that you are aware of your options when the time comes to start drawing from your plan.

• Although it pays to be cautious, don't automatically discount every opportunity that you come across because it sounds too good to be true. If the adviser or salesperson is very up front with you about the costs and risks involved in an investment, then it may be for real. There is an appropriate time and place for aggressive investments, provided you do your homework on them.

Resources

• FINRA
• CFP Board