Retirement Planning and Financial Scams, or How to Be Your Own Sherlock Holmes

Do you recall how famously focused the great detective Sherlock Holmes was on his profession and how indifferent to other basic facts about the world?  The man who could identify an obscure species of jellyfish actually boasted about his ignorance of the solar system.

I wonder how Holmes drew the line between useless and practical information. In the world of retirement planning, you of course need to know the practical, particularly how to prevent being scammed by unscrupulous people. It is critical that you become your own super-focused and brilliantly educated sleuth.  

You may think that it’s boring to learn the basics of financial products and how to protect yourself from potential scams, and you are not alone.  It took me a while to realize that some people do not find finance fascinating. I have two degrees in finance – an undergraduate from New York University and an executive MBA from Columbia – and so it’s no wonder that I think finance is glorified common sense.

But I am familiar with my parents’ reaction to financial knowledge. They are musicians, and putting a piece of paper with numbers on it, especially in a small font, makes their eyes glaze over. They check out. They want to hear from a person, not read from a piece of paper. Sadly, this makes them vulnerable to scams.

Unless you actually have someone close to you become a victim of a financial scam, you would never believe that something like this is even possible. I would have never suspected that my grandparents – a doctor and an engineer with over 100 patents to his name – could be conned. Three times! Once, they invested all their savings – and I mean everything, to the last penny – into a pyramid scheme. It paid them 90% returns for a few years. We begged them to get their money out. I will never forget my grandfather’s response. “We cannot afford to take the money out,” he said proudly,  “We need the interest.”  

Eventually, the bank running the pyramid scheme collapsed. My grandparents never got their money back, but they came to public protests that were held in front of the building. This event had a huge impact on them. It was a major trauma. They talked about it incessantly for years afterwards. Now I understand that things that make no sense to a person with a finance education may mean perfect sense to a doctor and an engineer. Even having a graduate degree is not a substitute for financial literacy.

Rule 1. You must have basic financially literacy to protect yourself from a potential scam.

The trust you place in any person must be backed up by your basic knowledge of fact. As a matter of fact, this is expected of you. “Buyer beware” is an expectation in financial industry as much as any other industry.

As if the incident with the bank’s pyramid scheme wasn’t enough, an unscrupulous person convinced my grandparents that the maintenance payments on their luxury apartment were going to go up steeply and they wouldn’t be able to afford it. There was no rational reason to believe that. It was a pure fear tactic that whipped my grandparents into emotional turmoil. They sold the apartment in a luxury building and bought another one, half the size and in a really bad shape. Their net profit was $3,000 (!).

When they told us about it, we were dumbfounded. They kept the transaction in complete secrecy from the rest of the family. They were so skillfully manipulated that they completed the transaction quickly and kept it from anyone who could have stopped them.

Rule 2. Identify a support network you can trust and rely on your basic financial literacy skills in times of emotional vulnerability.   

Nobody plans on being conned. There are two ways in which you can protect yourself. First, you need to know yourself enough to discern that someone is manipulating you, especially if you feel fearful, find yourself in a vulnerable situation, or when your emotions are running high. This is why people always say that major decisions should not be made if you are dealing with a loss of a loved one.

In a bizarre turn of events, my grandparents were conned for the third, and last time after their deaths when their former home attendant took the ownership documents for their cemetery plot and changed them in her own name. This happened because a family member consented to something they shouldn’t have on the day of the funeral.

If you cannot determine whether something is wrong, call in someone who can. This year, my 87-year old neighbor told me that her distant relatives wanted her to buy their house, which went into foreclosure for non-payment. They wanted her to buy the place and continue keeping them as renters. “If they didn’t pay their own mortgage, why would they pay you?” I asked. She was emotionally involved, so she couldn’t see that it was a poor decision. I was relieved when she dropped the idea.

Rule 3. Find a few people whose judgment is sound. I rely on a few friends who are unemotional and have a rational, clear mind. I count on their judgment when I am too close to the situation and unable to make a good decision on my own.

Fraud is Rampant

A FINRA (Financial Industry Regulatory Authority) alert warns, “In a 2006 study funded by the FINRA Investor Education Foundation, the Consumer Fraud Research Group examined hundreds of undercover audiotapes of fraudsters pitching investments scam. The tapes revealed that fraudsters are masters of persuasion, tailoring their pitches to match the psychological profiles of their targets. They look for an Achilles heel by asking seemingly benign questions—about your health, family, political views, hobbies or prior employers. Once they know which buttons to push, they'll bombard you with a flurry of influence tactics, which can leave even the savviest person in a haze.”

Read the full alert here:

Rule 4. Know yourself. Some people cannot discern that they feel vulnerable. If you feel vulnerable, say “I am not feeling 100% right now, I need some time to think about this.” That’s it.

It is important to stay well-informed. I know, I know. It’s very boring. But it’s not fun being booted out of your apartment or having a zero on your bank statement either. We all have to suck it up and put up with the “terrible pain” of being well-informed and financially literate people. Research proves the link between financial literacy, financial planning and wealth creation beyond a shadow of a doubt. And it’s a one-way street, too! Despite the complaints that only wealth creates wealth, studies prove that it is financial planning that creates wealth.

At the foundation of it all is financial literacy. I consider being aware of financial scams a part of being financially literate. If creating wealth and having a successful retirement is not enough of a motivation for you, then read five stories of people being conned and the horrible outcomes they endured. Scare yourself into financial literacy, if you must.

Rule 5. Find YOUR own motivation for being financially literate. It’s not enough to know that it is a requirement.  I believe the problem is that most people KNOW that it’s important, but they HAVEN’T FOUND THEIR MOTIVATION FOR IT. You need to find your personal motivation and I will show you how to do that in more detail in the article called Retirement planning and motivation that I will publish next week.   

Rule 6. Set aside some time to keep yourself informed on the latest financial scams. A few hours a month is plenty. It is a good investment of your time. Some useful resources are out there. We are all very lucky to live in this day and age when it is so easy to get to great information.

Here are two great sites with ideas to get you started – as Sherlock would say, “Elementary, my dear Watson.”


FINRA (Financial Industry Regulatory Authority) regularly publishes investor alerts on its website. To get an idea of the type of topics discussed, a few recent alerts are called:

Seniors Beware: What You Should Know About Life Settlements

Avoiding Investment Scams:

Weathering Tough Financial Times – the Long-term Costs of Quick Cash:

There are many other alerts available.


Each alert is cleverly structured to describe the issue, provide a list of factors you must consider in dealing with a particular situation, advise on how you can protect yourself and tell you where to turn for help. This is a highly appropriate way of presenting financial advice.

There are a few absolutes in finance, the financial equivalent of the law of gravity. But there are no absolute rules that apply to individual financial transactions. It is appropriate for some people in some situations and under certain market conditions. So, the approach that FINRA has taken makes a lot of sense: they give you the pros and cons and what to look out for.

For example, an investor alert called Avoiding Investment Scams ( lists and explains different scams  such as pyramid schemes, Ponzi schemes, pump-and-dump, advance fee fraud and offshore scams. The psychology of a scam and the most common tactics (the “phantom riches” tactic, the “source credibility” tactic, the “social consensus” tactic, the “reciprocity” tactic and the “scarcity” tactic” are also covered. Red flags of fraud (guarantees, unregistered products, overly consistent returns, complex strategies, missing documentation, account discrepancies and a pushy salesperson) are identified.

The study also describes risk factors and the profile of a person most at risk of being  victimized – typically someone owning high-risk investments, relying on friends, family or co-workers for advice without doing her own homework, being open to new investment information coming from an unreliable source, failing the check the background of an investment or broker and inability to spot persuasion tactics used by fraudsters. A Risk Meter helps you assess these characteristics and behavior traits. Finally, the alert lists the steps towards protecting yourself such as checking out investment professionals and investments.

Even if reading through financial alerts is not your favorite thing in the world, be Sherlock Holmes and learn about the psychology of a scam is fascinating in and of itself.  ”If these tactics look familiar,” the alert says, “it’s because legitimate marketers use them, too.” Sherlock would find gathering this information as useful to identify the scammer. 

New timely alerts are constantly being added. You can sign up to get the latest alerts by e-mail. 

FINRA also has a brilliant Scam Meter (, which asks you a few questions and provides the likelihood that you are being scammed. Since FINRA receives the complaints associated with the scams, it is able to derive the statistics associated with these situations and predict the likelihood that something is wrong. If you were Sherlock Holmes, the Scam Meter would be like Dr. Watson to do some dirty work.


The Federal Reserve Board
Another good place for information is the The Federal Reserve Board, at It provides information on all aspects of personal finance. Here are a few one-page articles that will start you off:

Avoiding foreclosure scams

Protecting your checking account

Protecting your home from foreclosure

By arming yourself with this knowledge in a relatively short period of time, you can be prepared and identify someone who might be vulnerable and help them be better informed. Protect yourself and earn some good financial karma!



Being about to protect yourself from a financial scam is an essential part of being financially literate and protecting the assets that you have to support you during retirement. Financially literate people are better at retirement planning, and it has been proven beyond a shadow of a doubt that planning leads to wealth creation and a more satisfying retirement. 


From Julia Valentine: I am grateful to Karen A. Joy for her insightful commentary on this article.

Today well lived makes every

Today well lived makes every yesterday a dream of happiness and every tomorrow a vision

I really like this website

I really like this website, and hope you will write more ,thanks a lot for your information.

There are many retirement

There are many retirement plans out there that offers high returns upon retirement but at the most important and vulnerable time of your life, they just start talking about a lot of losses. That is why we have to be careful about them. With your tips in mind, I am sure to find a very good retirement plan.

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