How to Avoid Elder Fraud

Ryan Ermey: Our main topic today is elder fraud, which you may think doesn't concern you, but your parents or grandparents may be more vulnerable than you think, and it may be up to you to protect them from scammers. Kiplinger's associate editor Miriam Cross tells you how in our main segment.

• Episode Length: 00:33:23
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Ryan Ermey: On today's show, Sandy and I discuss the results of Kiplinger's recent poll with Personal Capital and talk gift cards and fun names in a new edition of Financial Fact or Fiction. That's all ahead on this episode of Your Money's Worth. Stick around.

Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey, joined as always by senior editor Sandy Block, and, Sandy, we did a poll.

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Sandy Block: Yes, we did.

Ryan Ermey: Not the two of us personally...

Sandy Block: No, we didn't make the phone calls.

Ryan Ermey: ... but Kiplinger's did a poll with Personal Capital -- a national poll about the impact of market volatility on retirement planning. We conducted it in October and who the hell are these people? They were screened for age, household income, investible household assets, and it was an equal split between males and females. To participate, you had to have a minimum age of 40, a minimum $50,000 annual household income before taxes and a minimum $100,000 combined household net worth, excluding, of course, your...

Sandy Block: Your house. Yes.

Ryan Ermey: ... primary residence, and all of that is pertinent because it colors the results here -- and one of the interesting things that sticks out to me is that respondents are currently holding about 18% of their portfolios in cash. That's about six times the national average of three to 5%, and more than half said that they would increase holdings in traditional savings accounts to combat market volatility. Now, as you pointed out, you and I didn't actually go about asking the questions, and so...

Sandy Block: Because if we had, we would say why do you have so much in cash?

Ryan Ermey: Yeah, it's an awful lot, and I'm not sure. Combating market volatility, it's one of these things. I don't know exactly how this was phrased, but... so if you participated in the poll, then I'm about to scold you, and this isn't how it is, I'm sorry, but you really shouldn't be trying to take such proactive measures to combat market volatility. We've talked about on this show before that you want to set out with a plan that should include a certain level of market volatility baked in, which is about investing in line with your tolerance and capacity for risk.

Ryan Ermey: Now, if you're someone who's extremely close to retirement, it might make sense to have a big cash holding or a really conservative portfolio with not much equity in it, but we really would discourage people from trying to time the market, as it were, if they are afraid of upcoming volatility to make a drastic move like that into cash.

Sandy Block: Right, and what strikes me about it is if you have money in cash, you're basically earning nothing right now. So all this money that these people have in cash, they missed out on a lot of gains last year. I mean, we've had a really roaring bull market, so I understand people wanting to be conservative, and maybe some of them are waiting for stocks to drop so they can buy some, but I suspect that's not what's happening here. I think that just reflects fears of an upcoming bear market.

Ryan Ermey: This is right in that line, too, in that just about half of respondents -- some 47% -- would consider reducing their stock investments to combat market volatility and, of those, four of 10 would consider reducing stock holdings to 25% or less of their portfolio.

Ryan Ermey: Now, once again if you started at 30% and you want to go below 25%, because it's going to help you sleep at night, sure. There's no reason for you to be tossing and turning, because you're invested beyond your tolerance for risk, but, I mean, if you had a 60/40 portfolio and, now, you're going to take it down to 25%, it goes back to what our colleague Anne Smith said, I think, in maybe the second episode of the show ever. I'm going to paraphrase it poorly, but you shouldn't let the market drive your investing decisions. You should drive the market. You should be the one who is setting out with a goal and an investment plan, and you can end up losing an awful lot of money trying to time the market, and most people do.

Ryan Ermey: Now, another interesting part about this survey or about the results, it comes down to when people claim Social Security, and these results I think surprised you.

Sandy Block: Yeah. What they found was that if portfolios declined by more than 25%, more than 40% of respondents who are 55 to 64 said they would delay retirement, which is not a bad idea, but one in five, about 20%, said a downturn would cause them to consider claiming Social Security earlier than planned. Now, when you claim Social Security at 62, which is the earliest you can claim it, you get your money, but you bake in a permanent 30% reduction in the benefits for the rest of your life.

Sandy Block: Now, I understand why some people in the face of a market downturn would think, "I'll claim Social Security so I don't have to sell stocks at a loss," but if you are in this age group, you should have prepared for that already by putting enough living expenses for at least two, as many as five years in cash so you don't have to sell stocks to pay the bills, and if you claim Social Security early, eventually, this market downturn is going to end, but the haircut to your benefits will never end, so I think this is generally a bad idea.

Sandy Block: If you lose your job because of a market downturn or recession, you may not have any choice, and that's actually what happened after 2008. During that recession, we saw a big uptick in people claiming Social Security. Many of them were forced into early retirement because they had no choice, but if it's just an asset allocation issue like where am I getting my money, I really would think twice about claiming Social Security early because that is an irrevocable decision that will have a permanent impact on the amount of benefits that you can claim.

Ryan Ermey: Now, some good news from the survey results is that about seven out of 10 of the respondents did say that they had a longterm financial plan. Two out of three say they are dealing with market volatility by staying diversified and waiting it out. This is very much along the lines of what we would tell you to do, but only two out of 10 investors say they are currently seeking the advice of a professional advisor to address market volatility. Now, not everyone can afford a financial advisor or not everyone feels like they need one, but if you are among the people who are without a plan, I mean, seven out of 10 is good, but that means 30% of the people don't have a plan for volatility and hiring an advisor, I talked to a cousin of mine over Christmas. He and his wife have been married for a couple of years, and they really... they have complicated finances. They both work for themselves as freelancers, and they're not really sure how to save for retirement and how to deal with some of the financial obstacles that are coming up, and I was telling them that you don't really have to spend an arm and a leg for financial advice, and one of the models that make sense to me for someone who say he doesn't want to spend a lot on financial advice is a robo advisor.

Ryan Ermey: Now, a lot of people are uncomfortable with getting all of their investment advice from an algorithm or from a robot, but what's cool, and this is in our colleague Nellie Huang's story in the February issue of Kiplinger's, is that a lot of these robo advisors have what we call a hybrid model, so you can get the automated advice, but you also have access to a financial advisor, who's often a licensed broker or a certified financial planner. Now, you'll likely need a little bit more of a minimum to invest in one of these, although the people in our survey generally qualify.

Ryan Ermey: For instance, Fidelity's offering is $25,000. Vanguard's is $50,000. I mean, these aren't backbreaking amounts of money for people who might have a complicated financial situation, and once you get past that threshold, the fees are really, really reasonable, well below 1% in most cases, and so it's something I think a lot of people should really consider, so, anyway, be on the lookout. I'm sure we are going to be publicizing the full results of the poll. These are just a smattering of the results, and, of course, we have magazine polls in the magazine quite a lot and in front of the book, so be on the lookout for those. We always want to hear your feedback and, hey, give us some feedback on the podcast, too. Shoot us an email at podcast@kiplinger.com. We don't have to poll you. Just tell us. Just tell us what you think. We're happy to hear it. Up next, our interview with Miriam Cross on how to protect your loved ones from elder fraud. Don't go anywhere.

Ryan Ermey: We are back, and we're here with Miriam Cross, an associate editor for Kiplinger's magazine, who has a story, a fantastic story, on elder fraud in the January issue of Kiplinger's Personal Finance, so, Miriam, thank you for coming on.

Miriam Cross: Thank you for having me.

Ryan Ermey: We're talking elder fraud, and the podcast audience tends to be young and hip, but this isn't like a case of Murder She Wrote, where the demographic is. Why is this something? First of all, what's the scope of the problem that we're talking about and why is it something that a lot of people should care about?

Miriam Cross: Many of us have aging parents or grandparents and there are plenty of things we should do and really need to be doing to protect them especially as they get older. Also, when I say aging parents, it may not be as old as you think because cognitive decline starts... can start appearing as early as your 50s, which... yeah, which affects your ability to judge risks and that leads to diminished financial capacity. You lose the ability to handle your own money.

Sandy Block: One of the really startling things you report in this story is just how under-reported elder fraud is. Why is that?

Miriam Cross: There could be all kinds of reasons. It's estimated that only one in 44 cases of elder financial abuse are even reported. That could be because the victims don't understand what happened. They're embarrassed about it. Oftentimes, the perpetrator is a loved one, and that is very complicated...

Ryan Ermey: Yeah, that's a whole other Judge Judy can of worms.

Miriam Cross: Yeah, or they just stay... they don't want to lose their independence if someone finds out.

Sandy Block: Right. I mean, you mentioned the diminished capacity, but what makes older adults particularly attractive to scam artists, because it seems like they seek them out.

Miriam Cross: There are a bunch of reasons. Older adults may have accumulated significant assets over their lifetime, so people go where the money is. Older adults can be lonely or socially isolated, which makes them more vulnerable to schemes, especially ones that tug at your heartstrings, and the cognitive decline is also a big thing. We still maybe mentally sharp in many ways, but once we start losing the ability to handle our money, then we become susceptible to all kinds of scams.

Ryan Ermey: If you're going to visit your parents or your grandparents and spending time with them, what might be some warning signs that they might be a victim of something like this?

Miriam Cross: Look for things that are out of the ordinary. Is there a demeanor, unusually secretive or are they unusually giddy? Look at what's around their house. Are there weird pieces of mail? Are there stacks of gift cards? Gift cards are actually a huge give-away, because that's the number one method scammers use to get money. They ask you to go to the store, buy a bunch of gift card, prepaid gift cards and then read you the numbers off the back because you can't trace that.

Ryan Ermey: Oh, I see.

Miriam Cross: Mm-hmm and if you have access to their finances, such as their bank accounts, look for unusual activity or missing check numbers.

Sandy Block: What can you do to ward this off? I mean, if you're worried, you're hearing this and you think, "I should be paying more attention," what can you do to protect your parents or grandparents from fraud?

Miriam Cross: The first step is education, but education only goes so far, so you want to keep up on scams. We have a slideshow on the website that covers six scams that affect us, seniors in particular. You want to bring this up very sensitively. You don't want to feel like your parents or grandparents... you don't want them to feel like they're losing control, so you can say something like, "Hey, I read this really interesting article in Kiplinger's about elder fraud and they talked about this grandparents scam. Have you ever received a call like that? What would you do if you got that kind of phone call?" but education only goes so far because, especially as people get older and they experience mild cognitive impairment, they can know a scam, something as a scam one week and then they forget the next week.

Ryan Ermey: What are some of the really common ones that you mentioned? Then we'll put that slideshow up in the show notes so everyone can print a copy out and bring it with a magnifying glass.

Miriam Cross: The grandparent scam is a big one, and, it's funny, when I was reporting the story and I was... I told people what I was writing about and a bunch of people I know had parents or grandparents who'd received phone calls like this.

Sandy Block: Including one of our editors.

Miriam Cross: Including one of our editors, yes.

Ryan Ermey: Did they call up and say, "It's your grandson. I'm in trouble?"

Miriam Cross: Yeah, by, "I got into an accident," or, "I'm in jail. Please don't tell mom and dad, but I need you to wire me $9,000 immediately."

Sandy Block: What's really disturbing about this, and this is what we talked about with our editor whose parents experienced this, is these people use information they get on social media, so they're able to be very convincing. Not only do they say the name of the grandchild, but they'll provide enough details so the grandparents think, "Oh, yeah, that really is my son in jail in the Bronx and he needs to be bailed out," or something like that.

Miriam Cross: Right, and they're preying on a grandparent's love for their grandchild. They impulsively think, "Oh, I need to do this to help my grandchild."

Ryan Ermey: I did take a look, so romantic schemes seem to be one that... the ones that come up.

Miriam Cross: Yeah, so this involves either an online dating site or on social media. Someone will contact you. Maybe they pretend they know you're from a long time ago or just... they strike up a conversation on an online dating site. It'll only be over email, text or phone and they can't meet you in person yet because they need you to send them money so they can meet you. Or, they're having some sort of medical procedure and they need money and what happens is they end up milking even hundreds of thousands of dollars from the victim.

Ryan Ermey: It's like your regular old catfish right there.

Miriam Cross: It's funny, I feel like these are things. Maybe we are more up on these types of scams, but older adults who didn't grow up with this kind of technology are not as aware of it as we are.

Sandy Block: Right. I think one thing that gets a lot of seniors in trouble is the rest of... younger people don't answer the phone anymore. We have caller ID. We just don't bother, but a lot of older people do answer the phone, and, once you're on the phone, that makes you vulnerable to all kinds of somebody saying that your Social Security account was closed or they're...

Miriam Cross: ... or they're an IRS agent.

Sandy Block: ... an IRS agent, yeah, all kinds of things, answering the phone, and in a lot of times I think older people aren't as savvy about social media either. They don't realize that there's all this kind of fakes on Facebook.

Ryan Ermey: Oh, I mean, that you could take someone else's pictures and make a whole profile. We've all seen that. Have you seen the MTV Catfish TV Show?

Miriam Cross: No.

Ryan Ermey: The whole premise is, people... they call these two guys, because people are in some virtual relationship that they suspect might not be real and that it might be too good to be true and it takes some sophistication to suss out what's a real profile and what's fake. I mean, some things are like common sense. Do they never video chat you? Is it always sketchy? Can they never talk? Are they always in the dark? These can be technologically sophisticated things that people aren't aware of, even young people.

Miriam Cross: Right and the crazy thing is, some of this stuff, it sounds so obvious when we talk about it, but, when you're in the moment, it's not.

Sandy Block: One other thing I wanted to touch on, Miriam, because this is a... you mentioned that, oftentimes, these people are victimized by people they know and you mentioned caregivers. What can families do who need to hire a caregiver to protect their parents or grandparents from being ripped off by somebody who has really access to them every day?

Miriam Cross: Right, so the first thing, you want to know about the caregiver as much as you can. If you're hiring from an agency, make sure they're licensed, insured and bonded and they've undergone a background check. The thing is though, and I learned this from speaking with one person from my story whose father was victimized by his caregiver, you can still trust this person completely, and they can be opportunistic.

Miriam Cross: In this case, their caregiver had cared for his mother and they trusted her completely. She was with her in her final days, so then they used the same caregiver for her father... for his father, and, at that point, she had convinced the father that her child needed surgery, and he wrote her a check for about $5,000, but she said she wanted... she encouraged him to keep it a secret, that this was between them, so you have to be... even... so even if you think you trust the caregiver, you should still take other measures. That means protecting your smartphone and computer with a password when they come over, locking up your checkbooks. That's a big thing. They will take checks intermittently from the checkbook, not the top one. Shred personal documents. Make sure anything, any valuables are either locked away in a safe or in a safety deposit box.

Ryan Ermey: If you do eventually suss out that something is up, something is going wrong, that someone in your family has been a victim of one of these schemes, where do you report it? What recourse do you have?

Miriam Cross: See, that can be so complicated, and it depends on what exactly it is. Sometimes, the answer will be obvious. If it's a Social Security scam, then you call the Social Security office and report it. In general though, you want to call your local law enforcement and you want to call your local Adult Protective Services agency. A couple of good websites that will list resources by state are eldercare.acl.gov and the website for the National Center on Elder Abuse.

Ryan Ermey: All right. Anything else that people should definitely be keeping an eye on?

Miriam Cross: Especially when your parents get older, you want to get together with them and discuss with their banks and brokerages what sort of tools they offer to help you keep an eye on their accounts without interfering too much. Maybe the bank can give you a read-only access or send you alerts every time certain activity occurs. Maybe you can be made an interested party in the brokerage, meaning, you get to see statements, but you can't actually move money around. The thing is these benefits are not often advertised, so you need to speak with the financial institutions to see what they offer and also ask them how they monitor for suspicious financial activity.

Ryan Ermey: All right, so it seems like the advice is to stay vigilant and when it comes to people who deal with an older relative of yours, trust, but verify. So, look, we'll put Miriam's excellent, excellent story up in the show notes along with the slideshow of the key scams to watch out for, resources as well, and, yeah, Miriam, thank you so much for coming on.

Miriam Cross: Thank you for having me.

Ryan Ermey: Do you have unused gift cards? Do you own mutual funds or ETFs? Do you just like the sound of our voices? If the answer to any of those is yes, come back after the break.

Ryan Ermey: We're back, and before we go, a quick new edition of Financial Fact or Fiction, Sandy, what have you got?

Sandy Block: Here's my Fact or Fiction, Ryan. More than 1 billion, maybe as much as 3 billion gift cards go unused every year.

Ryan Ermey: Yeah. Why? I know the answer, because you and I went back and forth on these numbers. Whether it's one or three, there's a lot of them.

Sandy Block: There's a lot, and I think this shouldn't come to... as a surprise to people, because I'm guessing that if you're listening to this right now, you have a gift card tucked away in your wallet that somebody gave you, that you haven't...

Ryan Ermey: Yeah, I have two in my desk drawer.

Sandy Block: ... that you haven't used yet, so the reason I'm mentioning this is because January 18th, and, unfortunately, this did not make our calendar because it's new, but January 18th is National Use Your Gift Card Day, and it's a special day that the retailers have designated to encourage people to use these unused gift cards, and a whole bunch of retailers are offering special incentives to get you to come out and use your gift card, and the list is long, but it ranges from everything to AMC Theaters to Saks Fifth Avenue.

Ryan Ermey: There you go.

Sandy Block: I mean, the takeaway here is, yes, use your gift cards.

Ryan Ermey: What kind of perks are we talking about?

Sandy Block: It doesn't really say. I think it just says they're offering incentives or encouraging people to use their gift cards, so I don't know. I'm sure if you go to their websites, they'll tell you.

Ryan Ermey: Just come and spend your money please.

Sandy Block: Yeah, please spend your money, and, here's the thing. Most gift cards these days don't expire, but they could be... if you lose them, it's like losing cash. If you haven't registered a gift card and you lose it, you've lost cash and that's just money you're carrying around that you haven't used.

Sandy Block: I think one reason people don't use them, and maybe these incentives will help, is I have gift cards that have $2 on them and... because it's hard to zero out a gift card, but you really should. This is money. This is something somebody gave to you. As we've mentioned before on the podcast, if this is a gift card for a retailer that you really would not darken the door of, there are lots of gift card exchange sites where you can get, exchange your gift card or even get cash at discounted amount, but it's still something.

Ryan Ermey: Right, you're not going to get the full amount. It depends. If it's like a Visa gift card, you can get pretty damn close to the full amount, same with Amazon, but if it's for something very niched, Bob's Discount Fishing at an outlet, you're probably not going to get quite as much, but it's better than nothing.

Sandy Block: You could get something, yeah, better than nothing. Even if you get 50 cents on the dollar, that's 50 cents that you're not using, so, I guess, we're coming off the holidays here. We talked last week about the importance of exchanging early. I think it's important to use your gift cards early, too, and one other reason is this has happened in the past. If you happen to own a gift card for a retailer that goes out of business, your gift card could be worthless, and this has happened to people when we've had big closings, so this is probably not going to happen if your gift card is for Starbucks, but better safe...

Ryan Ermey: That would be fantastic.

Sandy Block: That would be really interesting, but it could be if it's for a store. A lot of retailers are tenuous, so, whether you do it on January 18th or January 19th, make a note to yourself to use those gift cards and enjoy the benefits of the gift.

Ryan Ermey: Here's mine, and it's mutual funds and exchange-traded funds must have names that accurately describe what they invest in.

Sandy Block: I hope that's a fact.

Ryan Ermey: Broadly. Broadly, it is, so there...

Sandy Block: Fact-ish?

Ryan Ermey: Yeah, so there are SEC rules in terms of naming your fund. You have to invest 80% of your fund's assets, and, what you say you invest in, it can't be deliberately misleading, so you can't call it... I can't call my fund Ryan's Best Large Company Stocks and then invest everything in tiny companies, but... or I can't do Ryan's Grade Bond Fund and then invest in stocks. You're not allowed to do that, and the SEC has recently cracked down on ETFs, because the thing with ETFs is that a lot of them are based on themes because...

Sandy Block: Right, or they're really niche-y. Yeah.

Ryan Ermey: Right, because they want to give investors access to something very specific and hot that they can sell right now, and, recently, the SEC has been telling a lot of these ETFs at the 11th hour like, "Maybe take blockchain out of the name." I know it's like buzz-y and it's going to come up in a Google search, but are you really... Are there really that many blockchain companies in the portfolio there? The thing is fun names can get squishier than Ryan's Bond Fund. Maybe it's Ryan's Contrarian Funds. How exactly do you define contrarian?

Sandy Block: Yeah, but that's... yeah.

Ryan Ermey: The point is this. You need to be checking on funds when you invest in them and as you hold them, and Kyle Woodley wrote a little bit about this in the January issue in ways to size up an ETF, and the first question he tells you to ask yourself is, "Does the ETF have legitimate investing theme or just clever marketing?" and he points out that the local shares Nashville area ETF invests in companies headquartered in Nashville, but which the idea is that Nashville is this big, booming...

Sandy Block: Happening, yeah, everybody wants to move there.

Ryan Ermey: ... up and coming city, but the thing is like Dollar General, which is based near Nashville, doesn't really get their earnings from Nashville. They have locations in 44 states.

Sandy Block: They just have a building there.

Ryan Ermey: That's exactly right. They have a post office box there maybe. Just because you're incorporated somewhere, it doesn't mean that you're deriving your profits from the profitability of that place, so, in terms of the ETF, really take a minute to look under the hood to make sure that it's invested in the things that you actually want to be investing in.

Ryan Ermey: Just quickly, another example that Kyle brings up, the Global X Social Media ETF (SOCL), which invests in stocks like Facebook, Twitter, Snapchat, they used to have NutriSystem in their portfolio because the argument was that the firm used it as part of customer support and you could use Facebook or Twitter or whatever. It's tenuous, right?

Sandy Block: Very tenuous, yeah.

Ryan Ermey: If you're investing, you're paying an expense ratio to own these things. You're paying a company to give you what you want. You have to make sure you're getting what you want, and this was a point that we bring up with mutual funds, too, especially the ones that have been around for a very long time. There's different managers. There's different flavors.

Sandy Block: They may not match, yeah.

Ryan Ermey: Our colleague, Nellie Huang, wrote a story about when to sell a mutual fund that we'll put in the show notes, but she points out that Fidelity low-priced stock, which is still a fantastic fund, but it used to be a domestic fund, only-US stocks, and now they have a big chunk of international holdings. That doesn't necessarily mean it's a better or worse fund, but it's not necessarily what you bought it for, so it's worth reviewing. Go through your portfolio, and, especially if you've held a fund for a long time, it could just be easy as a fund got really big, and they had to start investing in some bigger companies. Something that started out maybe as a mid-cap fund a few years ago might look more like a large-cap fund now, but maybe you bought it to boost your mid-cap holdings, so it's worth checking out. Morningstar is a good resource for this. It'll break down mutual funds or ETF holdings by market size, by country, by sector. Just make sure that you're invested in something that you paid for.

Ryan Ermey: That's it for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcast@kiplinger.com, and if you like the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

Links and resources mentioned in this episode

• Strategies for Managing Your Changing Risk Tolerance
• Risk Tolerance in the Bull Market Era
• In Volatile Markets, Focus on What You Can Control
• Watch Out for Elder Fraud
• 6 Scams That Prey on the Elderly
• Eldercare Locator
• National Center on Elder Abuse
• Offers for National Use Your Gift Card Day 2020
• How to Buy the Right ETF
• When to Sell a Mutual Fund