Elder Fraud: Too Close To Home

Ten years ago my grandmother was a victim of elder fraud. In what I now know was a classic scam, a scammer contacted her by phone, claiming to be a grandchild in trouble. (It’s also common for the scammer to pose as someone representing a grandchild in trouble, such as a lawyer or law enforcement agent.) In my grandmother’s case the scammer said he was in jail and needed bail money to get out, convinced her to buy cash cards at a grocery store on his behalf, and intimidated her into staying silent.

At first glance it appears that there were a number of people who could have raised the red flag. My grandmother could have recognized that the voice on the phone was not familiar, the grocery store clerk could have noticed her odd behavior, or our family could have checked in more frequently, as the scam took days to complete. But on closer inspection none of these avenues were likely to stop the scam. Like many elderly people, my grandmother does not hear particularly well, and does not always recognize familiar voices on the phone. Employees at a grocery store are generally not empowered to intervene if they notice suspicious but legal purchases. And at the time of the scam my grandmother lived alone, making the frequent family contact needed for prevention difficult.

While we have since taken steps to prevent such fraud going forward, they were not quick or easy. My grandmother’s finances are now closely monitored by a family member, and she has moved closer to family, making frequent check-ins possible. While these were needed changes, perhaps most important is that the whole family is now aware of these dangers and will be ready to take action if anyone notices something amiss.

My grandmother’s experience is distressingly common. In 2022, adults over the age 60 reported 88,262 complaints to the FBI’s Internet Crime Complaint Center, with a total loss of $3.1 billion. This represents an 84% increase in losses as compared to losses reported in 2021. The average loss per victim was more than $35,000, and more than 5,000 victims lost over $100,000. California has the highest number of elderly victims of fraud, and the collective amount of reported losses incurred in California was $624,509,520 in 2022.[1]

The Department of Justice’s Office for Victims of Crime list the following common scams[2]:

  • Grandparent scams such as the one described above.
  • Romance scams where the scammer takes advantage of people looking for romantic partners or companionship through dating websites or social media.
  • Government investigation scams where the scammer claims to be a government employee and threatens to arrest or prosecute victims unless they agree to provide funds or other payments.
  • Sweepstakes/lottery/charity scams where the scammer claims to work for a charitable organization and tells the victims they won a lottery or sweepstakes, which they can collect after paying “fees/taxes”.
  • Tech support scams where the scammer acts as a technology support representative and offers to fix non-existent computer issues. The scammer gains remote access to a victim’s computer or phone and their personal information.
  • Phishing scams where the scammer uses emails and websites that claim to be associated with financial companies and manipulates victims to disclose personal and financial data. 
  • Email extortion scams where the scammer shows evidence that they have one of the victim’s online passwords and claims to have put malware on the victim’s computer that lets them capture keystrokes, watch the webcam, and track online history that may be private, such as visits to adult websites. They threaten to share this information with the victim’s contacts unless the victim pays hush money in the form of Bitcoin.
  • Cryptocurrency scams where the scammer sends a message about a virtual currency investment opportunity and claims that the virtual currency investment involves no risk and sure profits.
  • Fake check/overpayment scams where the scammer sends a bad check to pay for an item, a sweepstakes award, lottery winnings, a grant, or a scholarship and then asks that some of the money be returned for fees to claim the award or overpayment.

An increased focus on education and assistance can thwart scam attempts. One, let’s do our best to educate our elders about the pervasiveness of scammers and the types of scams they might come across. Two, let’s be sensitive to our elders who may be filling new financial shoes and walk them through how to handle everything. Three, if they are unable to take charge of their finances, agree on a trusted person to assist them whenever needed. This could be as casual as helping make a phone call to a credit card company or as involved as creating a joint account with the trusted person’s name on it. If our elders don’t feel as alone and are willing to ask for help when uncertainty arises, then as families we can better fight back against the exploitation of some of the more vulnerable members of the population.

For prevention resources or if you or someone you know has been a victim of elder fraud, visit the Office for Victims of Crime website or call the National Elder Fraud hotline at 833-FRAUD-11.


[1] https://www.fbi.gov/contact-us/field-offices/losangeles/news/fbi-los-angeles-raises-public-awareness-about-elder-fraud-announces-arrests-made-this-week-of-men-who-allegedly-targeted-elderly-victims-in-timeshare-scheme

[2] https://ovc.ojp.gov/program/stop-elder-fraud/common-scams-and-warning-signs

Banking on Success: The Microfinance Movement

Did you know that over 1.7 billion people worldwide do not have a bank account with a financial institution? (World Bank Global Findex Database 2017) The vast majority of these unbanked people live in the developing world, and overwhelming evidence demonstrates the positive correlation between financial inclusion and development. Without access to financial services, unemployed or low-income people are far worse off. Cash can be hard to manage, loans from family, friends, and loan sharks can come at a high cost, and the ability to manage financial emergencies can be severely compromised.

Microfinance addresses this basic unmet need. The goal of microfinance is to provide people who are typically excluded from the traditional banking system access to it, in the form of savings accounts, individual and group loans, agricultural loans that can be paid back when the harvest comes in, insurance, and education, among other services. These small working capital loans are also known as microloans or microcredit. Microloans do not require collateral, and can be distributed in small amounts and paid back over long terms. Like conventional lenders, microfinance lenders charge an interest rate and establish a repayment schedule. However, there is no profit motive.

What is the global reach of the microfinance movement? In 2018 $124 billion was distributed to 140 million borrowers, of which 80% were women and 65% were rural borrowers, and it is growing every year. (Microfinance Barometer 2019) With cash infusions from microfinance programs the data shows that borrowers are better able to feed their families, send their children to school, improve their homes, reinvest in their businesses, leave farming and become entrepreneurs, and put money aside for savings goals or to serve as an emergency fund.

The impact of technological innovation in this space cannot be overstated. With increasing ownership of cell phones and access to the internet in the developing world, the fast-growing fintech industry is better able to deliver financial platforms to rural populations. These software applications remove old obstacles and create new efficiencies. For example, the ability to make digital payments or send money transfers can eliminate travel time and cost, administrative work, and also reduce corruption.

Above and beyond financial inclusion, microfinance organizations seek to promote self-sufficiency and economic justice for underserved populations. In a global pandemic our struggles are amplified and this message resonates more than ever. To find out more, check out the crowdfunding site Kiva (I have no affiliation) to see how one of the largest and most well-regarded microfinance organizations embodies this spirit.

Socially Responsible Investing Comes of Age

For many contemporary investors, portfolio construction goes beyond diversification and asset allocation. At the beginning of 2018, more than a quarter of professionally managed portfolios in the U.S. used socially responsible, sustainable, or impact investing strategies, accounting for $12 trillion in assets overall, according to the Forum for Sustainable and Responsible Investment (also known as US SIF). To the surprise of many, this growing trend is not limited to the millennial demographic, extending across all age groups as more investors seek to align their portfolios with their values.

What is all the excitement about? Here are the three models that generally define the social investment movement:

Socially Responsible Investing
Introduced in the early 1970s, this model of investment was based on screening out or excluding problematic companies from portfolios. Companies were excluded based on their involvement in negatively viewed topics such as weapons, alcohol, tobacco, gambling, fossil fuel production, and so on.

Sustainable Investing
Introduced in the early 2000s, the focus shifted from the exclusion of offending companies from portfolios to the inclusion of companies based on positive screens. These screens are known as ESG screens, which stands for environment, social justice and corporate governance. Positive ESG company profiles can emphasize environmental sustainability, human rights, consumer protections, and diversity, among other issues.

Impact Investing
In 2007, the term impact investing emerged. Impact investing refers to investing in companies that are developing solutions to global sustainability challenges. These challenges include climate change, sustainable agriculture, renewable energy, access to education, affordable housing, and improved health care, among other topics. The impact investing platform also recognizes companies that promote women’s leadership and gender equality, and companies that support community investing, including microfinance services. Notably, these companies also engage in shareholder advocacy and solicit public engagement.

Investors today have more investment choices than ever before, and the dynamic social investment realm is compelling. Investors truly can make a difference by tilting their portfolios toward companies prioritizing the triple-bottom line of people, planet and profit. And the profit component should not be underestimated – since US SIF began tracking the data in 1995, social investments have had a compound annual growth rate of 13.6%. This should prove once and for all that there doesn’t have to be a compromise on returns compared to conventional investments, and depending on the benchmarks, the social investments may even outperform.

For sources, see Bloomberg News.

Just Say No to Variable Annuities

Variable annuities are private financial contracts that provide income for a specified period of time, such a number of years or for life, and are tied to the investment performance of the mutual funds held in the contract. While the promise of a fixed income stream is enticing, I’ll level with you about the many downsides. In short, variable annuities are expensive, restrictive, and unnecessarily complicated financial products that offset any financial benefits they claim to offer.

Caveat emptor (“Buyer beware”). The salesperson pushing a variable annuity is largely motivated by the high commissions they will receive from selling it. I belong in the camp where if you are a financial professional, your fiduciary duty is implicit and paramount, and the client’s best interests always come first. The financial professional should never be incentivized to undermine the client’s best interests for their own gain. However, in the case of variable annuities, there couldn’t be a more egregious conflict of interest.

Here is a plethora of reasons not to buy one:

Commissions. Annuities are primarily front-end loaded, commission-based products. When a salesperson tries to sell you an annuity, don’t be afraid to ask about the commission they collect by selling it to you. Annuity firms can pay out commissions of 5% or more. Reality check: for each $100,000 you plunk into the annuity, that’s $5,000 or more in commissions. Furthermore, the mutual funds held in the annuity charge commission-like fees in the form of front-end loads, back-end loads, and 12b-1 fees.

Surrender charges. Most annuity firms charge a hefty surrender fee, usually on a seven year scale. For example, a $100,000 investment could cost you $8,000, or 8%, in surrender charges if you take your money out in the first year. The surrender charges usually go down 1% per year until reaching 0% at the end of the surrender period.

Fees. Additionally, there is a raft of dubious fees that may be charged by the annuity firm. This can include, but is not limited to, any of the following: asset fees, management fees, annual fees, quarterly transaction fees, withdrawal fees, rider fees, administrative fees, mortality and expense fees. With fees in aggregate costing between 2-4% annually, it’s difficult for investors to make money. At best, stated interest rate contracts (often called “guaranteed” interest rate contracts) may end up only paying out the stated rate (like 2%) because the rest is negated by fees. At worst, the fees negate any profits whatsoever.

Risk. The value of a variable annuity goes up and down with the market, so growth is not assured. Consider what would happen if the annuitant were to die prematurely. If the annuity has not been annuitized, the beneficiaries receive the value of the account. Depending on investment performance, this could be significantly less than what was originally invested. Or, if the annuity has been annuitized, all payments cease, even if only one payment has been made.

Irreversible consequences. Once you annuitize, you give up the ability to recover your lump sum or pass it on to beneficiaries. For example, if you put $250,000 into an annuity at age 60 and agree to receive a monthly income for the rest of your life, it could take 25 years to break even. It’s worth belaboring my last point as well – all payments cease at the death of the annuitant.

Poor tax planning. Once you put after-tax dollars into an annuity contract, withdrawals are taxed as ordinary income rather than at more favorable long-term capital gains rates.

Inflation. Rates are currently at historic lows, and will increase in the future. Over time, the purchasing power of fixed annuity payments is greatly reduced by inflation.

No socially responsible choices. Most annuities do not have any environmental, social, or governance screens that measure sustainability and ethics in regard to investments. As such, your investments may be supporting companies not aligned with your values.

Intentional derangement. Annuity contracts seem to be complex on purpose and the salespeople who tout them seem to skimp on disclosure. If the annuitant doesn’t fully grasp the terms of the contract, this benefits the salesperson, who likely doesn’t fully understand it either. Numerous clients have come to me with annuity contracts from other financial professionals and they can’t make heads or tails of them, and they certainly aren’t aware of all the limitations. Older retirees in particular are vulnerable to this dishonorable practice.

These myriad pitfalls of variable annuities add up to a vehement Do Not Touch With A Ten-Foot Pole rating.