Reputable financial advisors are unlikely to give older clients the hard sell on investing in precious metals as a path to a secure retirement, but that doesn’t mean those clients won’t hear the enticements elsewhere.
A coalition of state and federal regulators is warning about fraudulent precious-metal schemes that target investors who are approaching retirement or already retired. In some cases, the schemes seek to convert older Americans’ savings into gold or silver purchases with such exorbitant fees that it would be impossible to ever turn a profit.
“These frauds can be particularly damaging to individuals near retirement and retirees who could lose much of their retirement savings and find themselves unable to return to work to support themselves,” says Melanie Devoe, director of the Office of Consumer Education and Outreach at the Commodity Futures Trading Commission.
The CFTC joined with Finra, the brokerage industry’s self-regulatory organization, and the North American Securities Administrators Association, to issue a warning about aggressive precious-metal scams targeting seniors. Often, those take the form of affinity fraud, with the scammers infiltrating social-media groups or targeting their messages to lists of followers or subscribers who are known to share certain religious or political views.
“They then send spam email or make cold calls using high-pressure and often deceitful telemarketing techniques,” regulators are warning. “They even steal images of popular religious leaders, pundits, and celebrities to create fake endorsements.”
Advertisement – Scroll to Continue
The schemes typically tout gold, silver, and other precious metals as safe investments that will translate into a more secure retirement than an investor’s individual retirement account. The perpetrators attempt to convince older investors to tap into their retirement accounts to buy the commodities, usually targeting seniors because they have more money saved and their retirement savings are more accessible, according to the regulators.
The CFTC addresses some of the misconceptions that underpin these scams in a “lies versus facts” page on its website, noting that “gold and silver prices can be highly volatile just like other commodities or other types of investments.”
Other myths regulators want to debunk? The scammers’ assurances that they are offering the commodities at bargain prices. Gold and silver dealers “will always charge more than the current spot price when you buy, and pay less than the spot price when you sell precious metals back.” Sometimes the spread—the difference between a commodity’s spot price and what a dealer will either buy or sell it for—can be 300% or higher, which, coupled with various fees investors pay, means that it can be almost impossible to turn a profit.
Advertisement – Scroll to Continue
In addition to those steep markups, perpetrators of precious-metal schemes engage in other shady tactics to separate older Americans from their retirement savings, such as the false claim that collectible coins enjoy a special status and can’t be seized by the government.
“This is a common lie that goes hand in hand with lies about economic crashes or socializing citizens’ assets,” the CFTC says. “Fraudulent coin dealers use scary forecasts to instill fear, create false urgency, and pressure you to buy.”
Similarly, the scammers’ pressure tactics sometimes try to convince investors that precious metals qualify for “secret tax loopholes,” when in fact only certain types of bullion coins are eligible to go into an IRA.
Advertisement – Scroll to Continue
“If someone tries to sell you higher priced ‘collectibles’ for an IRA, the coins likely are not rare and you’re being scammed,” the CFTC says. “There are no secrets to IRA or 401(k) rollovers—just ask your tax advisor.”
Regulators have compiled a list of 10 questions investors should consider before investing in precious metals, touching on issues like the credentials of the organization or individual making the pitch and the pitfalls of the so-called self-directed gold or silver IRAs.
“Once that cash is in the [self-directed] IRA, you are on your own,” the CFTC says. “You no longer have fiduciaries or advisors there to help you guard against bad investments.”
Write to advisor.editors@barrons.com