For a lot of families, talking about your parents’ financial situation can be awkward, but if you’re the children of aging parents, it’s a conversation you need to have!
In a recent survey, 60 percent of elderly were the target of at least one fraud in the prior year.
Unfortunately, it’s easy to see why. The elderly can often be without up-to-date business acumen, subject to emotion and lonely. For example, I received a frantic voicemail recently from a long-time client who was concerned about the next chapter of her life. She lost her husband two years prior and was making material financial decisions with little experience and a lot of emotion. Her voicemail said, “I’m changing everything! I’m done. I’m scared of the economy. I’m selling the family business. I’m scared.” Now, if I were a scammer, could I take advantage of her emotions? She has no business expertise, is very emotional and is desperate to trust someone – anyone. This combination is a danger zone for widows and the elderly.
You may have parents or grandparents in this position. Before it is too late, make sure you ask the following 4 questions about who is advising them about money:
1. What is their professional background?
Don’t just take their word for it. I found out a few years ago that one advisor in our community blatantly lied on his website about his resume. If you want the facts about a person’s professional history, go to adviserinfo.sec.gov.
2. Who is the custodian of the money?
The custodian is similar to a bank account. If the custodian is a household name like Charles Schwab, LPL Financial, Edward Jones or TD Ameritrade, you likely can rest assured. However, if the custodian is a financial advisor or company you are not familiar with, it is important to ask questions to ensure that the money has not been commingled with an advisor’s personal funds.
3. How much in annuities do they own?
Annuities by themselves are not bad. However, the products have historically been abused by salespeople. A wrong recommendation could tie up someone’s money for an absurd amount of time (up to 10 years) with limited penalty free liquidity. There should be a specific strategy for an annuity recommendation and you should be wary if 100 percent of their money is in an annuity.
4. Are they too aggressive?
When the market continues to accelerate to all-time highs, someone sitting at home watching CNBC all day can manufacture a belief that they can beat the market. I have seen cases where greed collided with poor advice sprinkled with leverage can destroy someone’s wealth. Make sure the individual stocks and bonds are not high-risk bets, and if they want to participate in buying and selling individual securities, it is a limited amount of money. Start asking questions like how many individual stocks does my portfolio have?
Take our quick risk assessment test to understand your risk tolerance and how it affects your current situation.
Elder abuse takes many forms and financial abuse is one that doesn’t get enough attention. The two regulatory bodies that govern our industry (FINRA and SEC) have made it a point to dig deep into the audits of financial advisors to ensure that the elderly are properly guided. However, not all crooks are caught. It’s important that you, as a family member, ask tough questions for the benefit of someone you love.
Financial trouble with your parents can also affect your situation as you help fix what has been lost. You may find yourself in the sandwich generation, taking care of both your children and your parents, and finances can be stretched very thin. While you may want to help your parents, you don’t want to neglect your own financial planning.
This can be a tough situation for some families. Children of elderly parents may not want to or know how to start the conversation. If you have any questions or don’t feel comfortable talking with your parents, please contact us. We’d be happy to discuss your situation.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.