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When Investing for Retirement, Beware of Financial Double Talk

Are you one of those overconfident clients that disreputable advisors take advantage of? Avoid that fate by asking questions until you fully understand what you are getting into.

By Jennifer Nelson

As you save for retirement, it's not unusual to worry about making the wrong choices — investing in something you shouldn't, incorrectly balancing your portfolio, or falling for financial double-talk. How can you prevent being taken for a financial ride?

A woman calculating her retirement savings and investment. Next Avenue
Scientists found that young men with relatively high incomes who overestimate their financial expertise were most at risk, while older women with lower incomes and less financial arrogance about their skillset were more astute about being scammed  |  Credit: Getty

Researchers at Linkoping University in Sweden tried to predict which consumers were at risk of being misled by bad financial messaging, which in their study they gave the not-very-academic description "pseudo-profound BS." This is double-talk composed of vaguely related words that sound impressive and insightful but don't mean anything. The study showed financial scammers also use a misleading way of communicating.

Older women with lower incomes and less financial arrogance about their skillset were more astute about being scammed.

The conclusions drawn from the study may surprise some people. The scientists found that young men with relatively high incomes who overestimate their financial expertise were most at risk, while older women with lower incomes and less financial arrogance about their skillset were more astute about being scammed.

What's more, previous research found that people who fall for financial shenanigans are less analytical and are also the type of people that fall victim to "fake news" and buy into conspiracy theories. Gustav Tingh, professor of economics at the university and one of the study authors said that the research helps identify who is more or less vulnerable to being misled by bad, scam, or phony financial communication.

Beware of Fear and Greed

"People who are at risk of being taken by scams are those who are blinded by fear or greed," says Noah Schwab, a Certified Financial Planner at Stewardship Concepts, an asset management and financial advisory firm in Spokane, Washington. He says the most vulnerable are younger investors looking for a get-rich-quick scheme or older investors who fear losing everything.

"It's important to be self-aware of these emotions and realize that there are people out there that can use those emotions of fear and greed against you," he cautions.

So, what can you do to avoid falling victim to financial double-talk and how can you beef up your ability to detect and distinguish money nonsense from sound financial advice at retirement? Here's what the experts say:

How to Identify Financial Double-Talk

Schwab says discerning bad financial advice from good is difficult because if you are coming to someone for help, you don't already know the right answer. To help differentiate bad from good advice he recommends:

  • Research the advisor’s credentials. You can search their name or firm at Broker Check to see their history and the licenses they hold.
  • Learn how the advisor is compensated and if he or she is a fiduciary. “Typically, fee-based advisors with CFP credentials are fiduciaries that have your best interest in mind, unlike some commission-based advisors, who get incentivized to sell the highest-commission product,” says Schwab.
  • Ask trusted friends and family for referrals for an advisor and get multiple advisors' takes on your situation.
  • Ask lots of questions and trust your instincts if you don’t understand the answers you receive. Bad advice doesn’t always make logical sense, and that may be a telltale sign that it’s bad advice.
  • Spend time doing your due diligence on where you get information.
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How to Protect Yourself

Often, bad advisors rely heavily on their relationship with the client and a "just trust me" attitude. "When an advisor cannot provide clear validation for whatever is being recommended to the client, it's a big red flag," echoes Mike Wilson, a Chartered Financial Consultant, Chartered Life Underwriter, MBA and president of Blueprint Retirement Advisors in Dallas/Fort Worth.

Another way to protect yourself is to work with an advisor who uses financial modeling software that will allow a "stress test" for any product or strategy idea. Decisions outside of this process are just guesses. Of course, running any advice or products through a modeling tool requires having a relationship with a fiduciary planner. "But even then, clients should ask tough questions and only make decisions when they are comfortable with the answers," says Wilson.

While the Swedish study nailed down the demographic group most susceptible to financial double talk, Wilson says psychographics matter at least as much. That's the study of people's attitudes, aspirations and other psychological factors like how much risk they can tolerate, their values, opinions and beliefs.

"Someone who is typically too trusting is at risk. Someone who is too busy to do the research or reading is at risk," he says. "Someone who is unfamiliar with the topic is at risk." A healthy dose of introspection can protect someone from being deceived.

What Does Scam Retirement Advice Look Like?

Phony messaging and smarmy financial advice tend to be more frequent around products and strategies that are not regulated by the Financial Industry Regulatory Authority (FINRA) or the U.S. Securities and Exchange Commission (SEC). For example, the rate of return and tax benefits of life insurance policies are frequently misrepresented. The complicated nature of some policies can mislead people with claims that are too good to be true.

"If someone is promising you high returns with little to no risk or something that sounds too good to be true, it likely is."

A lot of phony messaging also revolves around annuities. Annuities are insurance products that generally pay out a fixed stream of income later in life. However, most require you to pay them quarterly or monthly. They usually invest in very high-fee funds and have large surrender charges if you try to get out of them early. Many annuities are advertised as having high yields, but this usually doesn't include all of the high fees that are difficult to understand.

"If someone is promising you high returns with little to no risk or something that sounds too good to be true, it likely is," says Jeff Gramp, a CFA, financial education advocate and director at Gateway Investor Relations in Newport Beach, California.

Generally, the more complex something is or the more bells and whistles something has, the more it costs. If you're adding a bunch of features and benefits to things like annuities and life insurance, make sure these are in your best interest.

Other good questions to ask are: What is the series of events where this won't work out well for me? and What is the biggest risk I should be aware of?

"If they can't give you a good answer, I'd be concerned, either because they potentially don't understand the product and your needs, or they're BS-ing you," says Gramp.

Remember, everything you invest in has risks; the answer is that it's never risk-free.

Photograph of Jennifer Nelson
Jennifer Nelson is a Florida-based writer who also writes for MSNBC, FOXnews and AARP. Read More
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