Wise Investing

Wise Investing

To help older investors make proper and informed investment decisions, financial planners should encourage seniors to complete the following steps.

Define Financial Objectives

The first step in wise investing is to understand current and future financial goals. Before investing, seniors should consider the advice of financial professionals in deciding how much investment risk is tolerable. Older investors should be encourages to provide advisors with written descriptions of their needs and risk preferences. The investors, in turn, may also wish to have financial professionals confirm in writing their understanding of financial goals.

Check Out Financial Professionals

In dealing with an investment professional, investors should check with the National Association of Securities Dealers (NASD). The association maintains records on all stockbrokers and brokerage firms licensed to do business in the United States. Ask if the investment professional is a member of the Financial Planning Association (FPA), which has a code of ethics for its members. In addition, The Certified Financial Planner (CFP) Board of Standards also has an excellent consumer area on its Web site to help seniors find a financial professional who adheres to the CSA Code of Professional Responsibility.

Seniors should determine exactly the skills, training, and expertise of any people representing them as financial services or planning professionals. This will guard against individuals who do not have the appropriate skills and experience to advise them in a fiduciary manner.

Be Wary of Strangers

When strangers call promoting investments, seniors should determine how the caller obtained their name and number as well as whether the caller would be willing to explain the investment proposal to an attorney, accountant, or another family member. Seniors who receive a challenging reply such as “Can’t you make your own decisions?” should hang up the telephone.

Resist Pressure to Act

Even more than most investors, older investors need adequate time to check out investments and salespeople. Seniors should not be afraid to ask questions or seek second opinions. Postretirement money is too important to be placed at risk with hasty decisions.

Understand the Nature of the Investment

Older investors should never assume that investments are federally insured, low-risk, or guaranteed to deliver a certain return. Before buying, an investor should investigate a potential investment by getting and reading the prospectus or similar offering document. Prospectuses can be lengthy and intimidating documents to an elderly person; a financial planner should be able to explain what the various disclosures in a prospectus mean.

Investigate Any Potential Investment

Almost all investment opportunities must be registered in the states where they are sold. Check out a potential investment by calling a state’s securities department. Although state securities departments will not make investment decisions for older investors; they can disclose whether a particular investment is registered in the buyer’s state. If a salesperson says, “It isn’t an investment that needs registration,” then a red flag should go up.

Monitor Account Statements Closely

An account statement should reflect only an authorized pattern of investing. If there is a discrepancy, a senior should raise the problem immediately with the broker and, if necessary, the branch manager who oversees the broker. With the assistance of a financial planner, a senior should carefully review account statements or other documents that reflect fees and commissions. If account statements or other documents that reflect fees and commissions. If such documents do not clearly indicate this information, as the broker or manager for the figures. If it appears that something is wrong with the client’s account and concerns are not promptly begin addressed, the NASD or state securities department should be contact immediately, preferably in writing.

Protecting against Investment Pitfalls

Interestingly, it is not always the frail or uneducated senior who is at most risk from investment scams. Seniors who are active and looking for the goose that lays the golden egg are at highest risk for investment scams.

State securities regulators, the AARP, and the Consumer Federation have identified common investment pitfalls among the senior population. Because many senior citizens are retired, they cannot easily use future wages to replace monies lost in investments. It is critical that older Americans consider investments that are suitable to their needs, especially when their hard-earned savings or lump-sum pension payments are at stake.

The most common pitfalls for seniors who invest are:

  • Salespeople who misrepresent themselves;
  • Uninsured products;
  • Inadequate disclosure about products;
  • Misleading fund names;
  • Lack of clarity in account statements.

Salespeople Posing as Impartial Advisors

With any investor, but especially older ones, confusion can result from the common use of confidence-inspiring titles such as investment consultant and financial advisor without the appropriate credentials behind them. Senior citizens may be unaware that investment salespeople typically make their living from commissions. Seniors should also recognize that individuals they speak with may receive referral fees for directing them to financial professionals. Seniors should request that the salespeople disclose their compensations in writing.

Uninsured Products Sold in Financial Institutions

Older investors are most likely to place particular trust in banks. It is very important for seniors to remember that investments such as mutual funds, whether purchased on bank premises or at brokerage firms, may lose value and are not insured against loss by the FDIC. If market values decline or interest rates rise, investors may lose money.

Inadequate Disclosure about Investment Products

Older investors must be on guard against unwarranted claims that some financial professionals make in their sales pitches. Prospectuses and other investment disclosure documents that are difficult to understand compound the inadequate or misleading communication about products. Many elderly investors claim they either are not informed of or fail to understand sales charges, up-front fees, or back-end charges. They may not realize that these commissions and fees may also apply to investments purchased at a bank. A good reminder s the old adage: If it sounds too good to be true, it probably is.

Misleading Fund Names

Often the name given to a mutual fund may not truly reflect its investment objective. Unsophisticated investors may be misleading by terms such as income or government to believe that investments made in such products will not entail risk. In actual fact, the asset value of any mutual fund may fluctuate due to changes in market conditions.

Unclear Account Statements

Most brokerage and mutual fund account statements reveal little about investment performance and fees and commissions. Financial planners can provide valuable assistance to their clients if they can help them calculate and evaluate these figures and investigate when numbers appearing in statements seem not to make sense or if the statements are not available in writing.

The information above is reprinted from Working with Seniors: Health, Financial and Social Issues with permission from Society of Certified Senior Advisors® . Copyright © 2009. All rights reserved. www.csa.us