The problem of financial fraud and exploitation of seniors continues to grow day by day. With many billions of dollars stolen from retirees each year, more must be done to help minimize the damage inflicted by financial scammers.

This effort will take a combination of public awareness through education and a concerted effort to protect the most financially vulnerable among us.

In my career, I have personally witnessed two financial frauds involving my own clients. In both cases, the perpetrator used popular scams, known as the IRS scam and the Grandparent scam.

Most financial frauds have a common thread. The crook probes for a targeted victim’s emotional vulnerabilities – from outright memory loss to a general limitation in understanding financial concepts – and then expertly exploits it.

Studies have shown that a person’s ability to grasp semi-complex financial situations “on the fly” – known as fluid intelligence – tends to steadily diminish with age.

Interestingly, as people grow older, their fluid intelligence can begin to diverge markedly from their overall mental skills and knowledge built-up in other important areas of their life. This divergence helps to explain why otherwise intelligent people fall for seemingly obvious scams. It also explains why many victims keep the crimes a secret due to their embarrassment and shame.

Through increased public awareness – not only for the elderly but also for their loved ones and caregivers – I believe we can help to combat scammers and to arm future victims and their families before a crime is committed.

To begin raising that awareness, here are some tell-tale signs a potential scam is underway.

The first sign is the con artist will pressure the victim to either act quickly or they will downright scare the victim, such as the threat of imminent arrest or even the revocation of their driver’s license.

In addition, the scammer may impersonate someone in a position of authority, pretend to be a loved one in need of financial help or will fake romantic interest in order to gain the victim’s trust.

Certainly, the challenge of prevention is complicated given advances in technology that allow criminals to easily mask their true identities and to avoid prosecution. Given this, developing proactive strategies and practices is our best line of defense to help protect the most vulnerable among us.

To learn more about how to better protect yourself or your loved ones against financial fraud, join Jason P. Tank, CFA, on Wednesday, October 19th at 6:30pm for his presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a commitment to provide open-access to financial education, for all. Visit MoneySeries.org.

With summer now in the rear-view mirror, the process of closing down the family cottage in Northern Michigan is underway. This inevitably sparks thoughts of next year’s plans and family travel schedules. But, for some, it also sparks lingering thoughts about the need to develop a plan to ensure your cottage will remain in the family for decades to come.

The decision to embark on estate planning for your cherished cottage is often less about financial maneuvering than it is about emotional considerations. After all, the memories made on the lake or on the banks of the river are no doubt deeply engrained in your family’s culture.

The importance of this was summed up nicely by Dan Penning, a local attorney with expertise in succession planning for family cottages, ”One client showed me a large oak tree in the side yard of his family’s cottage, which had a peculiar pronounced branch protruding about halfway up the trunk. A tire swing on a chain hung from the branch.”

”Through the years, the chain became embedded into the branch and my client told me that the swing had been there when he was a child and that he had played on it just as his children, grandchildren and now great-grandchildren were playing there 75 years later!”

Mr. Penning continued, “Stories like these are not at all uncommon over my career in assisting families in their planning for the protection and continued use and enjoyment of their family cottages by themselves and future generations.”

The unique factors involved in a successful cottage plan often requires honest, self reflection. For example, not all families are great candidates for cottage succession planning. It may simply be that the kids don’t share the same affinity you have for your cottage. In addition, the financial means necessary to maintain a robust cottage succession plan may not exist. If this is the case, there is no point in trying to fit a square peg into a round hole.

However, when your family’s structure points to both the desire and the means to ensure continued enjoyment of the family cottage for generations to come, the legal planning to create a lasting success naturally takes on the flavor of business planning.

Beyond the final legal structure chosen to transfer the ownership of your family cottage, the nuts and bolts of business operations must also be explicitly defined. These operational considerations take the form of shared financial responsibilities, cooperation on usage for each family member and their guests as well as the legal protection of the asset against future creditors or divorce, and many more.

To learn more about planning for your family cottage, join Dan A. Penning, founding member of The Penning Group on Wednesday, October 12th at 6:30pm for his presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a commitment to provide open-access to financial education, for all. Visit FrontStreetFoundation.org.

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Today’s annuities are so complex, it’s safe to say most people who’ve been sold one have little understanding of how they work. To help, let’s cover some general and specific features of both indexed and variable annuities, the types sold about 80% of the time.

During the accumulation phase, before you start to draw out money, variable annuities basically allow you to invest in mutual funds that rise and fall with the markets.

With an indexed annuity, your return is very loosely linked to a chosen stock market index. When stocks rise, you often receive just a small portion of the gain. In exchange, when the market drops, you don’t lose.

In essence, indexed annuities equip investors with training wheels along with knee, elbow, wrist pads and a helmet. All that protection can leave little to be desired. Often, indexed annuities give you only a small return, even in a good year for the market. While you might not lose, there simply isn’t much upside offered.

Becoming an educated investor in indexed and variable annuities requires you to decipher terms like, participation rate, cap, spread, crediting rate method, step-up feature, premium bonus, roll-up period, accumulation value, protected benefit base, living benefits, contingent deferred sales charge and guaranteed minimum rate, among many others. It’s like learning a whole new language.

Within many annuities, insurance companies also offer add-on insurance features that provide protections, at a cost, sometimes significant. These riders are designed to sweeten the annuity for the income phase, but they do require you to keep the product for a set number of years.

The most popular riders available for variable and indexed annuities are generally referred to as, living benefits. They often go by names that include the word, guaranteed. Put simply, among your normal annuity account balance, living benefit riders present you with a steadier “phantom” account balance that you cannot tap into unless you are willing to accept installment payments. These riders frankly make you feel a bit schizophrenic as you must follow multiple alternative account balances – both real and phantom – at the same moment.

Despite the sheer complexity of today’s annuities – whether you already own one or you don’t – gaining a working knowledge is a wise move. Based on the fact that about $250 billion of these annuities were sold last year, there are a lot of sales pitches to handle.

To learn more about annuities, join Jason P. Tank, CFA on Wednesday, September 14th at 6:30pm for his presentation for the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a commitment to provide open-access to financial education, for all. Visit FrontStreetFoundation.org.

Annuities are not typically purchased. They are most often sold. While annuities can be a valid solution for some, they can be entirely inappropriate for others. In my experience, annuity sales are too often sold to people who fear for their financial future. This is about to change and it couldn’t come a day too soon. Given the complexity of annuities, this is the first of two installments.

The Department of Labor, under their new and expanded fiduciary duty rules, clearly agrees with me. Once fully implemented, their new rules will subject many annuity salespeople to a much thicker layer of regulatory scrutiny. This will undoubtedly mean more objective advice is given to people facing important retirement decisions.

With that, let’s first define what an annuity is by describing the trade you’re making when you purchase one.

When you buy an annuity, you hand over your money to an insurance company. In return, you are promised a set of payments in the future. The point in time you begin receiving those payments can range from right away to decades later.

Let’s next categorize annuities by the way your money grows after you hand it over to the insurance company. Your return is either fixed or it’s variable.

With a fixed annuity, the insurance company promises you a set return on your money, like you’d get with a CD or a bond. With a variable annuity, your return is linked to stocks and bonds, like your typical investment account.

What makes annuities hard to evaluate are the extra features insurance companies build in. These features are often band-aids designed to soothe the real pain inflicted by your separation from your money – “Will I still have access to my money, if I really need it?” Or, annuity contracts contain bells and whistles designed to sweep away your pre-existing worries – “You no longer have to gamble at the stock market casino.”

Of course, the more flexibility and protections you desire in an annuity, the higher its cost and the lower your benefits. As much as they’d like you to believe it, the annuity industry has not yet discovered financial alchemy, unless you count their ability to consistently turn your fears into their fortunes. With a little education, your personal annuity decision – yes or no – will end up being what’s best for you alone, as it always should be.

To learn more, join Jason P. Tank, CFA on Wednesday, September 14th at 6:30pm for his presentation on behalf of the Front Street Foundation’s Money Series held in the McGuire Room at the Traverse Area District Library. Front Street Foundation is a nonprofit with a mission to provide open-access to financial education, for all. Visit FrontStreetFoundation.org to learn more.