The NASD’s 2006 Investor Fraud Study showed that human emotions play a big role in investor scams. At the root of the scams is pure, unadulterated greed.
According to the SEC, 91% of this nation’s net worth is concentrated in households headed by persons 40 years of age or older. Individuals 60 years old or more account for 15% of the population but 30% are investment fraud victims. 45% of all investment complaints come from seniors, and 30% of enforcement actions involve senior fraud.
Seniors as a Target
As seniors and retirees assume more responsibility for their financial security, they become easy prey for con artists. One reason seniors are so vulnerable is that life expectancy has increased. Monies set aside for retirement may not stretch. Add to the mix a personal crisis, such as serious legal issues/fees, an increase in property taxes, loss of mobility or mental abilities, and the potential for believing in scams grows, in the hope of bettering a current financial condition.
Targeting Boomers
Boomers offer con artists another opportunity to commit investment fraud. 75% of consumer financial assets are in the hands of the 50+ segment of the population. With nearly $9 trillion dollars of investable assets, boomers are vulnerable to schemes that promise to increase net worth, especially if unemployed, facing foreclosure or staggering under the weight of serious health care costs.
Financial Literacy
The NASD study also found that financial literacy didn’t protect victims from tactics used to commit investment fraud. In fact, many of the tactics are used by legitimate businesses, making it even harder to spot a scam. For example, many legitimate businesses use the scarcity tactic to force an immediate sale. Disney routinely puts its classic movies in a “vault”….not to be available for another 10 years (or more) to boost sales. Con artists will use that same scarcity tactic as a hook into an investment scam and force quick decisions. Knowing the tactics won’t guarantee immunity to scams, but will certainly help in identifying good advice versus “self-serving” advice. Use common sense to minimize the potential of being victimized by investment fraud.
There is no free lunch. Nobel Prize winning economist Milton Friedman is credited with coining that phrase and it’s still applicable today. The SEC is currently looking into the practice of offering real free lunch seminars. Heavy (and sometimes coercive) sales pitches generally accompany those free lunches, offering legitimate investment products, but not all of which may be suitable to one’s particular investment situation.
Six Ways to Avoid Getting Scammed
- If it sounds too good to be true, it probably is.The likelihood of doubling money overnight is slim to none. Don’t fall for that scam.
- Do background checks. Make sure the solicitor is licensed, registered and has passed all the exams necessary to do business. The NASD and the SEC have web sites to help determine those qualifications.
- Be discreet and selective in revealing information over the phone, the internet or in face-to-face conversations. In the hands of the wrong person, information can be used detrimentally.
- Curb the ego. No one knows it all. Talk to someone knowledgeable and trustworthy about the proposed “deal,” even if financially savvy. Objectivity is valuable.
- Ditch pride. Report the crime to the appropriate authorities. Don’t be ashamed or embarrassed, or feel guilty. Attention drawn to the problem will bring action to correct/eradicate it.
- Love many, trust few and always paddle your own canoe. Realize that there is a dark side to human nature. Protect against those with nefarious intentions.
