Retirement Investment Scams And How To Avoid Them

People who are about to retire often find themselves faced with a million different brokers who have a million different great ideas about what they should do with their savings. It can be overwhelming, but Kiplinger has a great article about shady investment scams and how to avoid them.

The most common schemes are over-hyped investment returns, unsuitable annuities, and Ponzi schemes, and the most important first step to avoiding all of them is to do a little background check on the broker you’re considering. If you’re going to be scammed—at least have the decency to be scammed by a licensed stockbroker!

From Kiplinger:

Be suspicious of any sales pitch that promises unrealistic returns. “Anytime you’re talking about average returns of greater than 12%, you’re not in the ballpark,” says Jim Eccleston, a securities lawyer in Chicago. In the BellSouth case, not only were investors led to believe they could earn about 12% per year, they were also told they could afford to withdraw 9% of their funds annually for 30 years.

Before doing business with a broker, check his or her background using Finra’s BrokerCheck tool. Look for disciplinary actions taken against the broker, as well as red flags — for example, the broker has frequently changed firms.

If the adviser is a certified financial planner, check his or her credentials with the CFP Board of Standards. Also consult the Senior Investor Resource Center and the SEC’s senior investor page.

Just checking whether the broker has a securities license can keep you out of serious trouble. “Maybe one in ten of our cases involve a licensed stockbroker,” says Colorado securities commissioner Fred Joseph. Many of the most notorious purveyors of bogus investments never held a license.

The article also recommends getting everything in writing, including making notes of any and all conversations you have with your broker. You can also ask the broker to provide you with a written summary of your discussions.

You should also make sure to open an account with an actual financial institution. Don’t just write a check to “Bob Awesomebrokerville.”

Protect Your Retirement From These Investment Scams [Kiplinger]