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Credit card hacking


May 2015

Although credit card companies and financial institutions are becoming smarter about protecting people’s personal information online, credit card fraud and identity theft are still very real threats.

And as more consumers move to paying for purchases with digital wallet solutions like Apple Pay and Google Wallet, they’ll need to weigh the convenience of storing personal financial information on their phones against the possible danger of data security breaches.

According to Karen Ellenbecker, founder of Ellenbecker Investment Group, older consumers are more likely to be concerned about hackers than their younger counterparts.

"Older people tend to question the safety of online financial transactions," says Ellenbecker. "They want to know how they’re being protected. Younger people, on the other hand, think credit card fraud is just a natural course of doing business in the cyber world."

While credit card fraud and identity theft dropped 21 percent in 2013, according to the Federal Trade Commission, data security breaches at major retailers like Target and Home Depot have made consumers question how safe their personal information and financial data are when making purchases with credit or debit cards.

Retailers are beginning to adopt more secure payment processing systems that encrypt consumers’ personal and financial information when they check out, but the changeover has been slow. However, there are steps consumers can take to protect themselves, says Betty Wellhoefer Hill of Crescendo Wealth Management. Common fraud protection practices include:

•Regularly monitoring bank accounts and credit card accounts online to spot any abnormal charges or transactions.

•Guarding personal information online. Make a habit of clearing your logins and passwords and consider changing them monthly.

•Checking your credit report. You’re entitled to three free credit reports per year. Request one every four months from the three major credit bureaus (Equifax, Experian and Transunion) to identify unusual activity like credit cards and bank accounts that you didn’t open.

•Declining to give out financial account information over the phone unless you placed the call and know the business to be reputable.

Uncovering hidden fees

It’s not unusual for potential clients to tell Michael Sadoff of Sadoff Investment Management that they can’t afford to pay the firm’s annual 1 percent asset-based fee. Yet when Sadoff asks those same perspective investors how much they’re currently paying in fees, they usually can’t answer. And frequently it turns out investors are paying 2 percent or more in hidden fees.

"Investors often have no idea of the fees they’re paying," says Sadoff. "They either don’t see, don’t understand or don’t pay attention to how much they’re paying."

In fact, studies consistently show that over half of investors aren’t aware how much they actually pay in fees. But understanding those fees is important because they can start to eat away at your investments over time.

"These fees may seem small, but over time they can have a major impact on your investment portfolio," says Brion Collins of Lake Country Wealth Management in Delafield.

If an investment is generating 8 percent in annual returns, but you’re paying 2 percent in hidden fees, your investment performance drops to 6 percent. And though 2 percent may not seem like much, year after year those hidden costs add up, reducing your portfolio value by thousands of dollars.

"For clients with investment portfolios in the millions, that cost is magnified even more," says Sadoff.

So what are some of the most common hidden investment fees people have no idea they’re paying? Operating costs or expense ratios, sales loads or commissions paid to brokers, account maintenance fees charged on an annual or quarterly basis, and investment management fees are just a few of the hidden costs investors routinely pay.

Investors can control excessive fees by taking a do-it-yourself approach, building and managing their own investment portfolios. For those who prefer a little more hand-holding, Collins advises choosing an investment professional who’s a fiduciary — a financial adviser who by law is required to act in the best interests of his or her clients.

"Interview advisers until you find someone you trust and feel comfortable with," says Sadoff.

Benchmarking investment performance is another way to monitor the progress of your investments and identify hidden costs that may be sabotaging your returns.

Although investors are becoming more fee conscious, some are willing to justify those costs if their investment portfolios are performing well.

"If investors are seeing returns in the double digits, they figure they must be doing well," says Sadoff.

This story ran in the May 2015 issue of: