Financial Red Flags and Scams to Watch Out For
While most financial professionals are ethical, the industry unfortunately attracts some bad actors who prey on seniors. Protecting your assets means being vigilant and recognizing warning signs. The FTC provides many resources on spotting and reporting fraud.
Red Flag 1: The “Guaranteed High Returns” Pitch
Warning Sign: An advisor promises you “guaranteed” or “risk-free” returns that sound too good to be true (e.g., 12% a year, every year).
The Reality: All legitimate investments carry some level of risk. There is no such thing as a high-return, no-risk investment. This is a classic tactic used in Ponzi schemes and other fraudulent investment scams. A trustworthy advisor will be transparent about the risks involved and will focus on creating a balanced portfolio that aligns with your risk tolerance, not on making impossible promises.
Red Flag 2: Pressure to Invest in Complex, High-Commission Products
Warning Sign: An advisor aggressively pushes a specific product, like a complex variable annuity or a non-traded Real Estate Investment Trust (REIT), without clearly explaining the high fees, long surrender periods, and risks.
The Reality: This is a common problem with advisors who are not fiduciaries. They may be recommending a product because it pays them a hefty commission, not because it’s the best option for your senior finances. A fiduciary planner will typically recommend low-cost, diversified index funds or ETFs and will always be able to explain exactly why a particular investment is right for your plan.
Red Flag 3: Lack of Transparency and Vague Answers
Warning Sign: When you ask how they get paid, they give you a confusing or evasive answer. They can’t or won’t provide their credentials in writing, or they discourage you from getting a second opinion.
The Reality: A reputable financial advisor will be proud of their credentials and completely transparent about their fees. They should be able to clearly state, “I am a fee-only fiduciary, and I charge 1% of the assets I manage for you.” Any hesitation or complexity in answering these basic questions is a major red flag. For more information on your rights as a consumer, visit the Consumer Financial Protection Bureau (CFPB).
