Time spent selecting financial adviser can pay off
— -- Despite more than three years and a powerful new bull market, the financial meltdown of 2008 still has many Americans worried about their retirement future.
A third of adults of all ages say that running out of money is their top retirement concern, according to a survey that Franklin Templeton Retirement Income Strategies and Expectations released last week.
Older Baby Boomers will fare the worst because they have less time to rebuild their nest eggs before retirement. And facing that looming deadline, many of them need financial help.
But investing is risky enough without worrying about investment scams. Sen. Charles Schumer, D-N.Y., has said that Bernie Madoff's Ponzi scheme is an extreme example of the many scams lurking out there that can trap unsuspecting investors. The Securities and Exchange Commission filed a record 735 enforcement actions in the 12 months ended Sept. 30.
That doesn't mean that you can't find sound, unbiased advice. "The vast majority of investment professionals are hard-working individuals who look out for the interests of their clients and customers," says Gerri Walsh, vice president of Investor Education at the Financial Industry Regulatory Authority (FINRA).
But to find a reliable broker, adviser or financial planner, experts say, there are some guidelines that can help you avoid the financial pitfalls.
Common consumer mistakes
•Failure to check out the background of a financial professional. "People just don't do any research at all," says Mike Alfred, CEO of BrightScope, a provider of independent retirement plan ratings and investment research. "They rely entirely on their golf buddy or a friend from church who say this is a good guy."
•Relying on professional designations. Just because a broker has a lot of diplomas, has lots of acronyms on his business card and drives a fancy car doesn't mean you should rely on him. "Those things can all be faked," SEC Chairman Mary Schapiro says. "You have to be skeptical."
•Buying investments you don't understand. Many products today are very complex and some brokers can't even explain them very well. "If you don't understand how it makes money for you, what fees and commissions or costs you have to pay, then you shouldn't be investing in that particular investment," Walsh says.
Persuasion tactics to avoid
•Affinity fraud. This occurs when con artists prey on members of a certain race, nationality, religion or other group. Because the average person doesn't have time to research investments, they often willingly rely on a fellow group member. The swindler hopes to lower the investor's guard and exploit their trust.
•Reciprocity. In this scam, someone offers a small favor in hopes of a big payoff. For example, senior citizens are often invited to free lunch seminars that include information and sales pitches. "They are counting on you to feel that you owe them something," Schapiro says.
Securities regulators have examined more than 100 free-meal seminars and found that half of them contained claims that appeared to be exaggerated, misleading or unwarranted investments. And 12% appeared to involve fraud, according to FINRA.
•Scarcity. Whether it's a car, a house or an investment, a pushy salesperson creates a sense of urgency. "The idea is that if you don't act quickly, the opportunity will be gone, and you should invest quickly," Schapiro says.
Steps to finding a good adviser
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