How To Find Competent Financial Adviser

How To Find Competent Financial Adviser

By Tim Grant, Pittsburgh Post-Gazette (TNS)

The No. 1 red flag that an investor may be dealing with a bogus financial adviser, according to money coach Liz Davidson, is if he or she guarantees a high percentage return with no risk. This type of investment simply does not exist, and investors should run out of that office as if the building were on fire.

“It’s just not realistic to expect someone can provide you with a consistent return regardless of what the stock market is doing,” Davidson said. She said Bernie Madoff, who ran a Ponzi scheme that ripped his clients off for billions of dollars, is a prime example. “Regardless of what the market was doing, his returns were very steady.”

Another big red flag, she said, is when an adviser is fixated on selling a specific product instead of getting to know you and your specific needs.

For today’s unstable financial times, Davidson has authored a book titled What Your Financial Advisor Isn’t Telling You: The 10 Essential Truths You Need to Know About Your Money, which offers tips on how to find a competent adviser; how to evaluate that adviser’s effectiveness; and advice on navigating a 21st-century climate where pension plans have died out and doubts remain about the future of Social Security.

“I’m a believer that you should look for an adviser with 10 or more years of experience and ideally have a certified financial planner designation,” she said. “Only a small fraction of a percentage of advisers are fraudulent. However, there are varying levels of competence among advisers.”

Even large well-known brokerage firms are not completely above suspicion.

The Securities and Exchange Commission announced earlier this month that J.P Morgan’s brokerage business agreed to pay $4 million to settle charges that it falsely stated on its private banking website and in marketing materials that advisers are compensated “based on our clients’ performance; no one is paid a commission.”

“JPMS misled customers into believing their brokers had skin in the game and were being compensated based on the success of customer portfolios,” said Andrew J. Ceresney, director of the SEC enforcement division in a prepared statement. “But none of the factors JPMS used to determine broker compensation was tied to portfolio performance.”

According to the SEC’s order, JPMS made false and misleading statements about broker compensation from 2009 to 2012. JP Morgan did not admit wrongdoing in the settlement.

Your worst financial enemy?

Davidson, the founder and CEO of Financial Finesse, is a provider of workplace financial wellness programs. She works with employees on all aspects of their financial lives. That approach, she said, allows her to understand the full financial picture employees face.

She has run the Los Angeles-based company for 17 years. Prior to that, she was an investment banker and hedge fund manager.

She said many of the most important financial issues people are coping with are things a financial adviser cannot help them with, such as choosing the person you spend your life with. That will matter more for your financial security than anything a financial adviser can do.

“You can recover from investment losses, or even job losses, but a partner who ruins your credit, raids your accounts or leaves you with a mountain of debts when he or she dies is much more devastating — and it can take much longer to recover both emotionally and financially,” she wrote in the book.

Davidson said she chose to include a chapter on life partners because most financial advisers will not work to teach couples how to manage money together.

“They are not marriage therapists,” she said. “They won’t pop up in in your living room to settle disputes about how you are saving, spending and investing your money.”

That’s the investor’s job. “You have to take responsibility for making sure you and your partner are on the same page financially,” Davidson said.

She said the safest and most profitable investment is one that no adviser can make for you — pay off your “bad debt.” Bad debt includes any debt on items that do not appreciate in value, such as car loans and credit card balances.

Financial advisers, for the most part, are focused on what is available to invest, not on what people owe.

“We talk to a lot of people who have high-interest credit card debt, and they are working with an adviser,” Davidson said. “They are losing money that way.

“The high interest rate credit card debt is typically at 15 percent to 25 percent. That is the same rate of return you get by paying off that debt, and no adviser can guarantee a return that size.”

©2016 Pittsburgh Post-Gazette. Distributed by Tribune Content Agency, LLC.

Photo: Author and money coach Liz Davidson offers advice on how to find a competent financial adviser. (Fotolia)


Fraudsters Targeting Senior Citizens Looking For Love Online

Fraudsters Targeting Senior Citizens Looking For Love Online

By Tim Grant, Pittsburgh Post-Gazette (TNS)

When investigators in the fraud watch department of Washington-based AARP received a call from a senior citizen late last year who had lost $300,000 to a con man she met on an Internet dating website, the organization looked into the problem. It found that in just the last six months of 2014, an estimated $82 million had been lost to online romance scams.

The Internet Crime Complaint Center, a joint project of the FBI and the National White Collar Crime Center, found that 29 percent of people targeted in such scams were women 50 or older, who accounted for more than 51 percent of all financial losses in romance scams.

“It’s a big problem for senior citizens,” said Amy Nofziger, director of AARP’s Fraud Watch Network. “The problem is a lot of them go on online dating sites and don’t even know fraudsters are lurking on them. That’s why we are educating them about this problem and ways to spot scammers and how to protect themselves.

“When victims believe their love interest is available 24 hours a day, it’s because they are working in teams and working off scripts,” she said.

A big red flag, she said, is when the online suitor spells his name different ways at different times, such as Steven or Stephen.

“Another red flag is if the online suitor’s emails contain many misspellings or bad grammar,” Nofziger said. “Most of the scammers are overseas. Their main intention is to steal your money, never to start an emotional relationship with you.”

Senior citizens are especially vulnerable to Internet dating scam artists because, like the $300,000 victim from Virginia, they are often widowed and lonely.

The Virginia victim met her suitor on the popular dating website, but all dating websites are potential playgrounds for people trying to trick others out of their money.

Many of the seniors who get wooed by online con artists are middle-class people who have scrimped and saved. The scams often occur over a period of time, sometimes up to six months, with the suitor usually asking for money in increments of $2,000 or $3,000 at a time.

They may claim they need cash to help a sick child or close relative. Or they pretend to be an American stuck overseas who will ask the unsuspecting senior citizen to send cash for travel expenses to visit America, but some tragedy will often occur on the way to the airport that prevents them from getting on the airplane — and requires even more money.

“The majority of these victims are financially secure, so $2,000 or $3,000 does not seem like a huge red flag to them,” Nofziger said. “They believe they are helping the scammer in some way, and they are in love. The victim truly believes this is the love of their life and they are going to start a future together.”

Nofziger said men are slightly more vulnerable than women to fall prey to Internet dating scams. But women are more likely to report it and talk about it. There can be embarrassment and shame when the victim realizes he or she was the victim of a con.

One way to double-check someone on the Internet, Nofziger said, is to put that individual’s photograph through the Google search-by-photo feature. Scam artists often use photos of models or military photos. The search will reveal where else that photograph has been used.

“We know many people have found their true love on these dating websites,” she said. “But by raising awareness, we will help educate them about the dangers that may be lurking on there.”

Anyone who believes they have been conned on an Internet dating website should call the AARP’s Fraud Watch Network Helpline number, 877-908-3360.

Photo: Pretty scary, right? Anonymous3000 via Flickr

Are Retirees Thinking Differently About Their Future?

Are Retirees Thinking Differently About Their Future?

By Tim Grant, Pittsburgh Post-Gazette (TNS)

For the group of adults ages 35 to 48 known as Generation X, the golden years of retirement will look a lot different than it did for past generations of retirees who often worked one or two jobs their entire careers, left the workforce at age 65 with a pension and spent the rest of their lives pursuing passions and leisure activities.

Weighted down with student loans, credit card debt and measly saving accounts, the vast majority of people from Generation X have come to believe the traditional definition of retirement is a romantic fantasy of the past, with more than 8 in 10 who participated in an Allianz Life study saying that a retirement starting at age 65 spent doing what you want is unrealistic.

“We surmise they will either work during retirement because they don’t have enough money, or they want to work because it keeps them engaged,” said Katie Libbe, president of consumer insights at Allianz Life, based in Minneapolis.

Allianz Life studied 2,000 Americans — including 1,000 baby boomers ages 49 to 67; and 1,000 Gen Xers — to determine what differences may exist between them.

Both groups feel they will have a lower quality of retirement than previous generations, but Gen Xers were much more hopeless about their ability to achieve retirement goals and about their overall financial situation than were their boomer counterparts. More than two thirds (67 percent) of Gen Xers agreed with the idea that supposed targets for how much you need to retire are way out of reach versus less than half of boomers (49 percent).

“It is widely reported that baby boomers are worried about their retirement, but the financial planning and retirement concerns of Generation X have gotten less attention,” Libbe said. “While our study confirms that many boomers still lack confidence about their future, it reveals alarming realities about the significant angst and pessimism Gen X feels regarding the current and future state of their finances.”

“They’re the next generation that’s quickly approaching retirement and their hands-off approach to planning and preparation is alarming.”

Libbe said the Generation Xers who participated in the study were carrying an average $30,000 in credit card debt, and viewed their credit cards as a survival tool.

Each generation in the study believed they are burdened by more expenses, more uncertainty and more risk than their counterpart.

However, when it comes to jobs, money and retirement, even baby boomers agreed that Generation X has it much tougher planning for retirement, saving money, keeping a job, staying out of debt and getting a job.

“Gen X is very worried about retirement and it stems from what they have experienced in their working lives,” Libbe said. “They bought their houses during the housing bubble and they experienced two bubbles — the Tech Wreck and the Great Recession. And they also have more debt than other generations, either through student loans or their credit cards.”

“We look at this generation and see how rough it’s been for them to get or keep a job due to recessions. They’ve found it hard to get out of debt and due to these things they are not saving as they should.

“Yet, the really surprising thing is they still believe retirement will work out. They believe they will figure it out when they get there.”

(c)2015 Pittsburgh Post-Gazette, Distributed by Tribune Content Agency, LLC

Photo: This jar of money isn’t going to cut it for retirement for Generation X. American Advisors Group via Flickr

For Those With Dementia, ‘Springing’ Power Of Attorney Debated

For Those With Dementia, ‘Springing’ Power Of Attorney Debated

By Tim Grant, Pittsburgh Post-Gazette (TNS)

Cognitive impairment can have a huge impact on a person’s ability to look after their own money.

When someone who is usually prompt about handling finances starts forgetting to pay bills, it’s a common warning sign of the beginning stages of dementia.

“Depending on the family dynamics, the person’s financial adviser may be the first to notice,” said Shomari Hearn, vice president of Palisades Hudson Financial Group in Fort Lauderdale, Fla.

As a financial planner serving many older clients, Hearn sometimes works with people who are in the beginning stages of dementia. But even when they recognize and acknowledge their own declining capabilities, many people, even in the later stages of dementia, want to stay involved with their money.

“Giving someone else the power to take control of your affairs can be a bit scary,” Hearn said, which is why he recommends designing a health care proxy and power of attorney that only become effective once two physicians determine that you lack the capacity to make medical and financial decisions.

This type of power of attorney is called a “springing” power of attorney. Springing powers of attorney are not permitted in every state, but Pennsylvania does permit them.

In Florida, however, a power of attorney must be effective immediately. The person who has the power of attorney can act as an agent handling all of a person’s financial and legal affairs.

Dementia is not a disease, but rather a group of symptoms that affect mental tasks like memory and reasoning. Dementia can be caused by a variety of conditions, the most common of which is Alzheimer’s disease.

Alzheimer’s is a progressive disease of the brain that slowly impairs memory and cognitive function. The exact cause is unknown, and there is no cure. People who have it can easily get lost, forget things and have mood swings. Gradually they lose control of their bodily functions and usually die three to nine years after diagnosis, according to the Alzheimer’s Association. The association, based in Chicago, estimates about 5.4 million Americans were living with the disease in 2014.

Not everyone sees the use of springing powers of attorney as the answer for such situations. Pittsburgh trusts and estate lawyer E. David Margolis does not recommend them.

“The challenge in using springing powers of attorney is, when do they spring?” he said. “You have to have a trigger, and it’s not always a clear line as to whether the facts and circumstances are there for it to trigger.”

Even having two physicians declare a person unfit is far from perfect, he said.

“Which physicians? And what if they take opposite points of view?” Margolis said. “One of them could know the principal well and (have) seen him over the years and has a good feel for his cognitive capacity. Another one who has only seen the person once or on a bad day could reach” a different conclusion.

“Powers of attorney are fraught with problems,” he said. “The fundamental problem is, the power is vested in the agent to act for the principal and, if the principal is not capable of oversight, the relationship relies on the loyalty and integrity of the agent. It’s hard to police a wayward agent who has power of attorney.”

Springing powers of attorney can potentially complicate matters even more at a time when a person’s health is in decline.

“Anyone they use as an agent should be someone they trust completely and unquestionably,” Margolis said. “I use a presently effective power of attorney. But the agent can’t use it unless they have it or the principal gives it to them or makes it available to the agent.”

In many cases, he said, the principal will allow an attorney to hold onto the signed power of attorney. The attorney would turn it over to the agent only when necessary.

For those in the beginning stages of dementia who chose to use a springing power of attorney, Hearn said they need to make sure their loved ones know about the documents and they should give copies of the executed documents to their appointed agents.

“It’s also a good idea to give copies of your health care proxy and living will to your health care providers,” he said. “If your doctors know your wishes ahead of time, it will be easier for them to help ensure that your wishes are respected.”

(c)2015 Pittsburgh Post-Gazette, Distributed by Tribune Content Agency, LLC

Photo: Jeffrey Simms Photography via Flickr

Study Of Working Homeless Sheds Light On Financial Motivation

Study Of Working Homeless Sheds Light On Financial Motivation

By Tim Grant, Pittsburgh Post-Gazette

A competition among working homeless people to see who could save the greatest percentage of their pay provided researchers with valuable insights that could be used to encourage middle class people to improve their financial circumstance.

In what is believed to be the first detailed study of the savings behavior of the working homeless, assistant professor Sera Linardi of the University of Pittsburgh and colleague Tomomi Tanaka, an assistant professor at Arizona State University, tracked the savings rates of 123 residents in a Phoenix homeless shelter during a month in which they vied for a $100 prize for the biggest saver.

While the average savings rate increased by 33 percent during the competition, some people in the study group did not increase their savings rate at all.

Residents who already were focused on saving enough to leave the shelter were motivated to save even more, but those who were less inclined to save were not influenced by the competition.

“We found competition can make an object that is moving go faster, but it doesn’t make an object that is not moving move,” said Linardi, a behavioral economist at Pitt’s Graduate School of Public and International Affairs.

The research, published in the November 2013 issue of Journal of Economic Behavior and Organization, omitted the name of the homeless shelter to avoid identifying any of the participants.

The homeless people in the study group had reached the highest status_Level 3 _ at the shelter. They had progressed from sleeping on a mattress (Level 1), to sleeping on a bunk bed (Level 2), to having their own cubicle (Level 3). They also had obtained work as cooks, janitors, telemarketers or commissioned sales people, and were on the verge of getting back on their feet.

“From the data that I have of 60 residents that actually completed an exit interview, they saved an average of $414 in 116 days total at the shelter, 45 days of which they were earning an income,” Linardi said, adding that the target savings is typically two months’ rent.

The amounts they saved varied. The top 25 percent of homeless residents saved $607. The top 10 percent saved $1,000 or more.

The average monthly income for those who had income was $450. The average income for all the shelter residents –including those with no income — was $240 a month.

Interestingly enough, when Linardi and Tanaka repeated the competition the following month, they no longer found any difference between the savings rate for the competition group and everyone else in the shelter. They speculate that was because the more aggressive savers in the first competition group had moved out.

They also suspect those who saved at a high rate the first month may have simply burned out, leading them to believe that while a savings competition can increase savings in the short run, the results diminish with repetition.

The competition may also have provided a glimpse into what motivates middle-class Americans to save.

“People want to be normal,” Linardi said. “The reason the competition was so successful in getting the homeless to save more is they don’t want to compete with people they already know have a stable footing, because everything in their lives is just so different. “When we put them in this competition, they feel, ‘Everyone here is like me; I can beat them.’ You level the playing field.”

That understanding might be helpful for inspiring others, as well.

“For one group of middle-class people, putting money into a 401(k) may be too far of a stretch,” she said. “They may simply want to pay their utility bill on time. So you group those people together and see if they can take one more step. For those who already have $100,000 in a 401(k), you group them and get them to take the next step from where they are. It’s about finding this perfect interval at which we can convincingly say, ‘You are all on the same level playing field.'”

AFP Photo/Spencer Platt

Social Media Can Give Banks An Inside Look At Potential Borrowers

Social Media Can Give Banks An Inside Look At Potential Borrowers

By Tim Grant, Pittsburgh Post-Gazette

The personal information that friends share on social media websites is being used by a growing number of financial institutions to build a credit profile for potential borrowers, in addition to the official credit report. How that information can — or should — be used by lenders is still up for debate.

“Our view is there is a constant push by lenders to manage risk for their loans. They want more data to qualify the creditworthiness of the loan applicant,” said Thomas Pryor, a spokesman for, a personal loan matching network based in Fort Lauderdale, Florida. “Our company policy is against it.”

He said lenders are logging into Facebook, Twitter, and other social media websites to look for items that provide insight into a loan applicant’s lifestyle and behavior. They also use such websites to verify any public information about an applicant.

Lending Club, a peer-to-peer lending network based in Redwood, California, routinely uses social media to gather information about loan applicants but says the information would only be used to deny a loan if it raises questions about an applicant’s identity.

“We don’t use social media to make credit decisions. We do sometimes review online data to verify identification or prevent fraud,” said Scott Sanborn, chief operating officer at Lending Club.

PNC Financial Services does not review its customers’ social media activities when reviewing loan applications, said spokesman Fred Solomon.

Lenders are not the only ones using social media. Collection agencies and lawyers use social media to track down people. Hiring managers also are using social networks to conduct reference checks.

Lenders, in general, are cautious of denying loan applications based on what they discover on social media websites because they run the risk of violating the Equal Credit Opportunity Act, which requires lenders to tell borrowers why they have been denied credit.

“The rule requires lenders disclose the top four primary reasons the loan was not approved. If social media is in there, it would be listed,” said Nessa Feddis, senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association in Washington, D.C.

Feddis said banks are required to monitor social media for complaints about the institution itself. If a bank representative sees a tweet from a customer — such as one about a job loss — that raises eyebrows, he would probably inquire further. But the bank would not make a lending decision based on a tweet alone.

Representatives at PersonalLoanOffers feel strongly that what anyone says in a social media setting should not have any bearing on their financial life. “Our position is we condemn the trend,” Pryor said.

“With social media, there is no process or path for borrowers to dispute incorrect items or invalid information that potentially prevents them from getting a loan they need.”

AFP Photo/Leon Neal