The Securities and Exchange Commission held it’s first ever Senior Summit on July 17 to discuss what we have been reporting on and warning people about for years, the widespread abuse of senior citizens by crooked brokers and so-called investment advisors. SEC chairman Christopher Cox actually used some of the fire and brimstone language that I have utilized in my columns when he stated to the USA Today that “There is a special place in hell for those who prey on older Americans.” (I wonder if he reads the newsletter or listens to the show?)
The NASD Investor Education Foundation released some findings at the seminar that the media and panel found shocking but we have known all along. The victims of senior investment fraud are not who everyone often assumes them to be. Mary Shapiro NASD vice-chairwoman released a study that showed that senior investment fraud victims happen to be better educated, wealthier, and more financially literate. These victims are most likely to be men, married, and are very reluctant to admit they have been victimized. Granted, little old ladies with nobody to look after them are still being victimized, just not in the same volume as astute, married, older men.
Roel Campos and SEC Commissioner made an interesting comment at the summit when trying to explain the phenomenon when he stated, “It goes to psychological or social vulnerability. How do you fight that?” We have discussed greed and the power it wields over investors and the importance of personal responsibility. Salesmen are taught to push “greed buttons” when selling financial products. (Watch the movie “Glengarry Glen Ross” or “Boiler Room” for accurate examples of how this is done.) Con-artists paint pictures of wealth, prestige, bigger cars, boats, or condos to seal the deal. When younger people fall victim to the get-rich quick myth they have time to recoup losses, older Americans do not. In our experience, greed is an investor’s worst enemy. It makes normal, rational people, do incredibly irrational things. Con-artists will search out individuals “greed buttons” to unleash a person’s irrational side.
One of the panelists at the Senior Summit was Anthony Pratkanis; a psychology professor at the University of California at Santa Cruz stated that educational efforts need to expand beyond financial literacy to educating senior citizens about the various persuasion techniques con artist use. One of his statements caught my attention; he stated that teaching investors the nuts and bolts of investing and leaving out persuasion techniques is “like teaching a new poker player the difference between three of kind and a full house and nothing about the bluffing.” I appreciate professor Pratkanis’s analogy however he is remiss in the biggest and most damning psychological factor of them all, greed.
The conventional wisdom myth that anyone can blow away the markets with the right trading software, or stock-picking guru is sold through commercials run on all the major networks and talk radio. Brokerage firms and banks, not just the free lunch/dinner seminar crooks and boiler room operators, shovel this wisdom as well. The fact that the major networks run ridiculous advertisements and popular radio talk show hosts run phony testimonials for the gold and commodity rackets only adds credibility to the whole get rich quick lie.
For example: Sam Waterston, (a.k.a. The district attorney on Law and Order) pitches the falsehood in advertisements for T.D. Waterhouse, where their latest ad highlights two school teachers (actors) that are sitting on the veranda of their multi-million dollar house that supposedly got by trading stocks online. CNBC pushes the myth with James Cramer and his Mad Money program. I couldn’t believe my eyes when I saw a promotion for one of CNBC’s new programs entitled Fast Money where they promoted one of the panel’s accurate picks from the prior week, and how much money the viewer could have made if they only watched the show. (I couldn’t believe what I was watching was legal) The nerve of CNBC is stunning. After acting like drunken cheerleaders throughout the dotcom fiasco helping to run up the stocks of their Wall Street advertisers best clients, they highlight one of the rare occasions when someone is accurate. As well, if I hear another national talk radio show host tell his or her audience that they “buy all their gold through ______.” I will get sick. Do you honestly think that these guys are stocking up their vaults with gold coins?
The out-performance myth is also packaged by Wall Street through hedge funds, commodities and high-fee fund of funds to name a few. They have experience in packaging products that are all style no substance. Remember how many technology/dotcom funds were launched in 2000. Now, they are jumping on the commodity and hedge fund bandwagon.
The bottom line is wherever you turn, the same lie that the villain free-lunch/dinner seminar guys and gold hawkers are selling is being sold by the mainstream. Granted it is more cleaned up and refined while being aired during Wimbledon or the British Open, but it is the same nonsense.
The same aspect of human nature that drives people to blow money at casinos is the same characteristic that destroys individuals’ finances. There is no SEC/NASD regulation or law that Congress could enact to outlaw that demon. Besides, that demon tends to contribute a lot of money to campaigns. Focusing on ones goals in life and enacting an intelligent and realistic plan to meet those goals is the only way to avoid the greed trap. I appreciate what the SEC is doing in trying to help seniors out in regards to the con-artists, but realistically they can only do so much. Once the SEC is involved in a situation, the horses are already out of the barn. It is too late and the chance of being made whole is slight. Whether it is from a slick talking salesman offering to buy you lunch or a supposed guru on CNBC pitching you the latest and greatest fad, keep yourself out of and away from dangerous situations.