by Paul S. King, CFP®
Identity theft and related crimes are a large and growing threat to consumers and society. Financial planners are in a position to take a leadership role helping clients protect themselves and recover quickly from these crimes. This article focuses on identity protection as a new and vital addition to comprehensive risk management advice offered by financial planners.
Key discussion points:
- The scope of the identity theft problem
- The impact of identity crimes on consumers
- Effects on the planner-client relationship
- Examples of cases faced by financial planning practitioners
- Why planners are needed to counter identity theft and related crimes
- Steps planners can take with their clients
If the 1990s could be labeled the Information Age, then certainly the first decade of the 21st century could be labeled the Age of Information Compromise. Database thefts, selling of personal information both legally and illegally, Internet "phishing" scams, and identity crimes run rampant. The Federal Trade Commission estimates there were more than 10 million victims of identity theft in 2004 alone and that 1 out of 5 Americans will have had an identity crime committed against them by year's end. Drug addicts and international organized crime rings have adopted identity theft as their modus operandi for committing crimes with low probabilities of detection and prosecution.
Financial planners are well versed in the conventional areas of risk management: property, life, health, disability, and long-term care. It is time to add a new category: identity risk management. Financial planners can take a leadership role in helping their clients understand and effect changes in consumer habits that can protect them from the new risks that this burgeoning crime wave exposes them to.
Scope of the Problem
The threat of personal information being compromised and used illegally is a serious national problem. Total thefts topped $47 billion in 2003.1 The average monetary loss per victim is estimated at $4,800,2 with an additional $16,000 in potential lost wages due to the time demands of recovery activity.3 Clients are threatened daily by e-mail scams, database thefts, legitimate but ethically questionable information sales, and information trafficking by international organized crime rings. More than 52 million Americans have had their personal information compromised in data breaches since the ChoicePoint incident in February 2005.4 Near-perfect driver's licenses are readily available on the Web from offshore suppliers who know they are providing false documentation.5
The personal impact of identity crimes however goes well beyond monetary losses. One estimate calculates that an average of 600 hours is required to recover from identity theft.6 That's a total of 297 million hours a year spent by victims to clear their good name. Legal tie ups and credit score reductions can compromise granting of new credit for a year or more. Fifteen percent of all identity theft victims reported that the identity thief used their information in nonfinancial ways.7 Emotional distress and the impact on trust in financial relationships can't be underestimated. Many victims of identity theft fear for their physical safety and worry about who may now have access to their information as well as how it was stolen in the first place.
Financial planning-related impacts on consumers include increased monetary risk, time loss, lifestyle impacts, and uncertainty in making decisions due to the widespread and evolving predatory practices of identity thieves. Many victims only find out about a crime when they are turned down for new credit applications.8 We have worked with clients who have even been denied opening a retirement account because their 401(k) vendor already had an account open from a customer in another company using the same Social Security number.
From the financial planner's standpoint, the practitioner is also faced with increased uncertainty. As with the USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001), you must know your client to a greater degree than ever before. It will take added scrutiny and time to develop trusting relationships for both parties.
Why Planners Are Needed
To properly address the current and future risks inherent in the Age of Information Compromise, each client will require
- A proactive identity risk management plan
- An organized approach for protection, detection, and recovery from the universe of identity crimes
- Continuous monitoring, diligence, and research
There is no better choice to lead this effort than the client's financial planner. Planners arguably have access to more information about a client, both financial and personal, than any other relationship the client has entered into. Ninety percent of identity theft occurs within the health care and finance industries.9
Clients trust and expect that financial planners will proactively inform and protect them from any financial and lifestyle risks. Many times the client is not in a position to gauge the legitimacy of information and offers they receive and need a professional sounding board.
Law enforcement, the federal government, banks, credit bureaus, and motor vehicle departments are all regularly reported as "unhelpful" by victims. They are simply overwhelmed by the caseloads and the ensuing work to be done on identity crime cases. A typical response to an identity theft may require action from all of these entities and more, yet there are few resources available to a client to assist in the coordinated response.
My interest in financial frauds and scams began in earnest with a phone call to me by the Las Vegas branch of my savings bank inquiring if I was "the Paul King opening up a bank account here." After assuring them that I could not be in two places at once, I found out that the thief had a driver's license, Social Security card, and credit card, all with my information. Only the decisive action of a bank teller kept this criminal from sweeping funds from my other accounts.
Not long after this incident, my business also became a target of an identity scam when someone printed checks with the King Wealth Planning name and attempted to cash them.
I have counseled many clients and family members who have been victims in a wide variety of identity crimes. Such was the case when I received a call from an elderly client who believed he had won an international lottery. When I told him that these were thieves seeking to gain his personal information, he responded rather innocently, "No—all they're asking for is my bank account number!" Several months later, he called with a similar scam. "We covered this before," I counseled. "Yes," he said, "but last time, they wanted money in advance. This time I just need to fill out a form." Sadly, the fact that the form asked for his Social Security number and bank account information didn't seem to alarm him.
More than money is lost in an identity theft, most important being the loss of trust. This was never more true than the case of a priest we know who fell for the infamous "Nigerian scam," borrowing over $1 million from his parishioners without explanation, traveling to Africa and promptly losing the money.
We had a case of a client who was told by a nationally known retirement plan custodian that they could not open a 401(k) account with them even though the client worked for a Fortune 500 company. The reason? Someone had previously opened an account with the custodian using the client's Social Security number.
The business and personal stories are too numerous and widespread to list here. They are only limited by the imagination and audacity of the identity thieves.
What Planners Can Do
Financial planners can take it upon themselves to
- Become familiar with the full range of identity crimes
- Stay current with news of database thefts and new scams
- Provide information through lectures and newsletters to clients
- Have an identity theft kit
- Call clients to action—don't let bad things happen to people you know
We developed our own identity theft kit10 for use by our wealth management clients so they take steps to protect themselves from potential crimes, and to act as a "fire extinguisher" in the event of a client becoming a victim. Time is the ally of the identity thief and prompt action begins with preparation. Useful information can be found at the Federal Trade Commission (www.consumer.gov/idtheft), Privacy Rights Clearinghouse (www.privacyrights.org), and the Electronic Privacy Information Center (www.epic.org).
The key elements of an identity theft resource kit should include
1. Sample letters and forms
- Identity theft affidavit
- Opt-out letters for credit bureaus, financial institutions, and credit bureaus
- Dispute letters
- Account-freeze letters
- Collection agency stop-contact letters
- Victim telephone log form
- Wallet or purse contents form
2. Action checklists of steps for
3. Reference information: appropriate state civil and penal code sections pertaining to
- Credit agency rules and regulations
- Security breach notifications
- Credit agency contact information
While financial planners could charge for time and advice in advising their clients on identity risk management, this is a new field with rapidly changing scams, technologies, and laws. An alternative to being the expert and direct service provider for identity risk management is to outsource and position identity theft advice and services as a value-added service for your clients. Offering a conduit to objective, unbiased advice and services can create valuable and enduring goodwill.
For the sake of our clients and our country, trust through proactive service based on true fiduciary relationships will become imperative to operate in a climate of greater uncertainty.
Paul S. King, CFP®, is president of King Wealth Planning Inc. and a founding member of KnightsBridge Castle Corporation (www.knightsbridgecastle.com ), offering a suite of identity theft protection, detection, and recovery solutions including proactive services for financial planners. He is co-author of The Identity Theft Resource Kit and delivers identity protection workshops, called "When Bad Things Happen to Your Good Name."
- Federal Trade Commission, Identity Theft Survey Report, September 2003.
- Federal Trade Commission, note 1.
- Identity Theft Resource Center: www.idtheftcenter.org.
- Privacy Rights Clearinghouse Web site: www.privacyrights.org.
- Northern California REACT Task Force, 2005.
- Federal Trade Commission, note 1.
- Federal Trade Commission, note 1.
- George Mason University.
- University of Michigan.
- Identity Theft Resource Kit by Paul King and Tim Logan, ISBN 0-9765908-0-8, available through Amazon.com.