This guest post is courtesy of the Alberta Securities Commission.
Many people approaching - or already in - retirement are looking to maximize the returns on their savings and investments. Sadly, many fall victim to fraudsters who are skilled at preying on our emotions, insecurities and vulnerability at this critical time.
Up to 27% of Canadians have been approached with a possible fraudulent investment. Older persons are targeted for several reasons, but often because they are perceived to have the most disposable income or wealth.
With 4.6% of Canadians investing money in what has turned out to be an investment fraud, one may well wonder: “How can so many people fall for bogus investment schemes? ” Not being clear about our own risk tolerance or investment goals is certainly a factor. Also, successful fraudsters tailor their sales pitch to our “weak spots” and do so in a persuasive and professional-looking manner.
Here’s how investment fraudsters typically use three ways - the Internet, the telephone, and your personal connections - to attempt to separate you from your money:
The Internet and E-Mail
The Internet is a quick and easy way for scam artists to find potential
victims. Online fraudsters can operate anonymously from anywhere in the world, making them hard to trace and catch.
Spam emails that reach thousands of people are cheap and simple to create. Online discussion boards and social networking websites, such as Facebook or Meetup, allow people to create groups around investing strategies, or advertise seminars for new investment products. Although some may be legitimate, approach these solicitations with extreme caution.
If you receive an investment solicitation via email, treat it as “spam” and take these steps:
* Do not reply to “spam” emails. Block further emails by adding them to your “blocked senders” list.
* Do not provide ANY personal information unless you have initiated the communication to a company or individual you know and trust.
* Many investing websites look legitimate, but watch out for non-relevant information or spelling and grammatical errors on the site. These red flags are signals to do more research; it could be a scam.
Cold calls
Phone calls are among the most common ways to inform people of investment opportunities. “Cold calls” can be valid ways for businesses or charities to identify and market to potential clients. However, these calls may come from a makeshift office or “boiler room,” promoting a business idea that sounds very profitable - a “sure thing”. These callers may falsify information, try to pressure you into a bad investment, or attempt to outright defraud you.
If you have “call display” on your phone, you can choose to ignore all calls when you don’t recognize a number. If you do choose to answer, protect yourself with these tips:
* Be wary of an investment opportunity that seems “too good to pass up”. Don’t feel pressure to make any decision on the spot.
* Don’t let someone persuade you to invest in an opportunity that isn’t right for your risk profile or time horizon.
* For peace of mind, do your own research about the company or individual offering the investment. Discuss it with your own accountant and financial adviser.
Through friends and family
Scam artists often will take advantage of common bonds developed throughreligious, professional or ethnic relationships or the close ties of family and friendship. This is also called “affinity fraud”. Fraudsters take
advantage of the intrinsic trust within a group by first befriending a
respected or influential member. This person then unknowingly assists the fraudster by sharing the investment “success” they’ve had with others.
Because of the group leader’s credibility, many others may decide to invest in a potential scam. This type of scam can be especially devastating for older adults who have little time to recover financially and are left feeling betrayed by those they trusted.
Avoid falling for “affinity fraud” by following these steps:
* Be suspicious of investments described as “exclusive” or only offered to a particular group or membership.
* Watch out for investments or advisers who claim a personal connection; treat everyone who offers you an investment opportunity the same… no matter whose “friend” they are.
* Question investment tips, advice or referrals that come from other “trusted” group members. They may have done NO research or background checks and could have been selected by the scam artists as early influencers.
Don’t be dazzled by promises of unusually high rates of return. Do your
homework before making a sudden move with your investment portfolio. Falling for a fraudster can cost you your life savings.
© Alberta Securities Commission, 2012. All rights reserved.
The Alberta Securities Commission is the regulatory agency responsible for administering the province’s securities laws. It is entrusted to foster a fair and efficient capital market in Alberta and to protect investors.
For more information on investing or how to protect your money,
visit the “For Investors” section of the ASC website at www.albertasecurities.com, email [email protected],
or call toll free 1-877-355-4488 to request your free investor and fraud prevention brochures.
Subscribe
