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Who Do You Trust?

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In this month’s column I will share with you two instances of fraud that my family members personally experienced. In both cases, the victims trusted the people who were helping them manage their finances.

The first incident involved my Uncle Jess in San Diego who had to file for bankruptcy at 88yrs old due to advice from an unexperienced or unethical investment representative at a major bank. (I am only licensed in Arizona, thus could not manage my uncles funds personally.)

My uncle was promised he could increase his monthly income by moving his CD to a non-bank investment opportunity which paid a higher monthly dividend. What wasn’t explained clearly to my uncle was the account fluctuated in value, based on the investments change in value. The representative did not contact him when the account was not performing well. My uncle continued to receive the same monthly check until all of the assets in the account were paid out to him.

What happened is the investment lost value and did not accumulate enough income to pay the promised amount monthly to my uncle. He was unaware that if the investment did not produce the expected dividend, the monthly income would then come from cashing out the necessary shares of the investment. Without Jess realizing it, the brokerage representative continued to send him the same monthly check by cashing out more and more shares of the investment. Soon all of his original principal was gone as all shares had been sold and the income from the sale had provided my uncle with his monthly check.

The unexpected sudden drop in income cost my 88yr old uncle his house, which he could no longer afford to pay the payment on as he had to spend all his remaining savings just to make ends meet. He didn’t tell me what happened until it was too late, after he lost his home and moved to a rental. He wanted to sue the bank but had no case as he had signed all the appropriate disclosures, without reading them. When I asked him why he just signed everything he said he trusted the bank, and if the investment was offered through a bank employee, then he thought it was legitimate.

In addition to my Uncle losing his life savings due to advice from an inexperienced or unethical financial advisor who didn’t explain how a market oriented investment worked (but collected his 8% commission), my mother also lost much of her retirement savings due to an unethical family member who used her funds as his personal piggy bank.

At 85 my mother was too trusting with a very close member of our family who, in addition to being unethical, was greedy. In the beginning he had her add him to her checking account and give him power of attorney, “to make things easier for her”. One of the many documents she signed for him was adding him as the joint trustee on her trusts. A few months later he had a doctor sign a statement saying she was experiencing memory loss. Using that letter, he had her deemed incompetent and fully took over both of her trusts and her entire life savings. He then immediately began spending her money.

Yes, this is one of the main reasons people establish trusts so a trusted individual can take care of their finances when they no longer can, but there is a requirement that the funds spent must be used for the incompetent individual’s needs. I can promise you my 85yr old mom did not need nightly dinners at high end restaurants, thousand dollar cases of wine, 65” TV’s, or a Corvette. Thankfully, Arizona’s elder abuse laws regarding financial exploitation allowed me to intervene and put an end to the bleeding of her life savings.

Thus my mother, like my uncle, became another statistic, as approximately one in four of all senior citizens, (26%) are financially exploited. Unfortunately over 50% of financial exploitations are perpetrated against individuals over 50.* I am happy to tell you my Mom will be 89 this month and continues to visit her cabin in Overgaard which I helped her and my Dad build in 1983.

If you do have any questions about financial fraud or your personal investments, please contact me at 480.296.9556 or rudy.eidenbock@raymondjames.com

*Source: Elder Abuse: Financial Scams Against Seniors, Nolo Legal Encyclopedia

Rudy Eidenbock is a Financial Advisor, RJFS. You can reach him at Office: 480-307-9909, Cell:480-295-9556, Fax:480-907-1413, 4111 E Valley Auto Dr, Ste 104, Mesa, AZ 85206, www.puritywealthadvisors.com, rudy.eidenbock@raymondjames.com