Any investment comes with risk; every investment opportunity should warrant research and due diligence. Alternative investments can be both lucrative and powerful, but without doing your research, you can fall victim to fraudsters and scams.
As a self-directed IRA custodian, Preferred Trust sees all kinds of sales pitches, investment sponsors and investment opportunities. We’ve also crossed paths with many precious metals dealers and processed countless metals transactions.
Over the past few years, some alarming trends have emerged in the precious metals industry. Predatory metals dealers are taking advantage of older consumers, manipulating them into bad purchases and leaving behind a wake of heartbroken buyers in emotional and financial distress.
While not all precious metals dealers are bad, the market is rife with unregulated metals dealers fueled by greed and fast money. These bad actors are actively inciting fear and manipulating consumers, all in the name of making a sale. The elderly are particularly vulnerable and targeted.
It all starts with sketchy marketing tactics.
These messages are designed to reach an aging population during a time of isolation, capitalize on their fears of losing their retirement and manipulate them into purchases with the promise of making money. The timing and messaging of this marketing is no coincidence. The ads appear during late night and early morning hours when seniors are most likely to be alone and unlikely to call family members or advisors.
The advertiser typically takes a “doom and gloom” approach, preying on common concerns: fear of government encroachment and mishandling, inflation, taxes and market crashes, then suggests the need to protect your retirement. The ads strategically exploit these pain points, implying that a variety of impending disasters will cause the dollar’s value to fall, the value of precious metals will rise and the only way to survive will be to buy precious metals.
The precious metals dealer then extends an incentive designed to build trust, offering freebies like “thousands of dollars in free silver,” “free IRA and storage fees” or “free shipping to anywhere in the US.” They close the loop by applying pressure and creating a sense of urgency with “a limited time to take advantage of these offers.”
These tactics lead to significant losses.
Precious metals dealers aren’t regulated, so no guidelines exist on markups or fees. This means brokers can charge exorbitant rates and gouge customers without reprisal.
Dealers often quote prospective buyers a total purchase price per ounce but don’t share how much of the total they will retain as their commission. These markups are huge, sometimes a 40 percent markup from the value of the metals being sold. If a buyer pays $50,000 to purchase the metals, $20,000 is being pocketed by the metals dealer. Frequently, buyers don’t discover the discrepancy until they attempt to sell the metals and realize the current value is lower than the initial purchase price.
Investing in gold and other precious metals comes with risk, including loss. While gold may be considered a “haven” investment, gold and other metals are not impervious to price declines. Even in the best market conditions, recovering from an initial 40 percent loss is difficult.
We are a society where if the reviews look good – hit the buy button.
Google “buy precious metals,” and you’ll get pages of search results with the overarching message that every precious metal dealer is the number one dealer. Consumers look at reviews to establish trust and credibility. If a company is number one and has hundreds of five-star reviews, they must be good to their customers, right?
Incentivized reviews can create an excellent first impression, mask underlying issues and imply the dealer is operating on the up-and-up. The dealers know this and strategically use incentives to solicit positive reviews. Immediately after a purchase, the dealer will encourage customers to leave a positive review in exchange for a freebie like free shipping, free storage, or even a silver coin. The goal is to capture the review early, portray a stellar reputation and prevent new prospective customers from finding out they collect a 40 percent commission on precious metals purchases.
It is important to stay vigilant and act if you or someone you know falls victim.
While watchdog groups and federal protection agencies are dedicated to protecting consumers, their budgets and resources are small compared to the dealers who are raking in huge profits. Legitimate dealers who operate in good faith are out there but are much harder to find. The ones who advocate for their clients and do business with integrity are often drowned out in the marketing frenzy. Couple this with the fact that selling precious metals is an unregulated industry and you have an environment that is ripe for scams.
If you believe you have been defrauded or mistreated by a firm, file a complaint with the Commodity Futures Trading Commission (CFTC).
Review the Four Golden Rules for Precious Metals Investing at Preferred Trust. If you have questions, call us as we continue to advocate for consumers not to be taken advantage of when investing in precious metals through their IRA.
Members of the editorial and news staff of the Las Vegas Review-Journal were not involved in the creation of this content.