The sum of $50 billion is a chunk of change in anyone’s book. It’s the amount of money the United States loses to financial fraud schemes every year. As National Crime Prevention Month comes to a close today, financial fraud happens every day. You can prevent financial fraud.
In a recent report you should not miss, “Financial Fraud and Fraud Susceptibility in the United States,” the FINRA Foundation released the following statistics:
• More than eight in ten study respondents were solicited to participate in a potentially fraudulent offer.
• One in ten respondents lost a significant amount of money after engaging with an offer.
• Many Americans cannot identify the classic red flags of fraud. In the study, nearly half of respondents found promises such as “an annual return of 110 percent” and “fully guaranteed” investments to be appealing.
• Upon being solicited for fraud, older respondents—that is, respondents 65 and older—were 34 percent more likely to lose money than respondents in their forties.
Of course, older Americans are often prey for dishonest scammers, but the “most vulnerable” demographic for financial fraud is men 55+, well educated and investment savvy, says Walsh. That’s surprising to me—or maybe not?
Same old fraud
In a technologically-savvy age, fraudsters still use old techniques applied to new situations, says Ann M. Harkins, president of the National Crime Prevention Council.
“People will take advantage of any situation they can,” she says. The most prevalent fraud is committed by unlicensed professionals selling unregistered investments outside the sphere of regulation.
Maybe you’ve been invited to a “free dinner” educational seminar by a broker—64 percent of respondents in the above survey were, too.
“There’s nothing wrong with seeking education, but that doesn’t mean you have to buy,” says Gerri Walsh, FINRA Foundation president. “You can even prepare a refusal script when you’re pressed to commit. Always find out what company is behind the person leading the seminar. Are they licensed to sell securities?”
The phone remains a major weapon of fraud, as do those emails, says Harkins: “You’ve won the lotto,” or “I’m stuck in a foreign country without any money”: You know the drill by now. Also, make sure you have a “lock” feature on your phone that’s password-protected, should you lose your device.
What’s your limit?
When dealing with a broker, first know your risk tolerance, says Walsh, and run away from emotional persuasion tactics that pull at your heart strings. You have a remarkable resource at your disposal in FINRA’s BrokerCheck, where you can research brokers, brokerage firms, investment adviser representatives and investment adviser firms—it’s part of FINRA’s SaveAnd Invest.org. Make sure and spend time there. Now, you don’t have to wonder if your broker is inclined to have your best interest in mind.
If the broker isn’t willing to put something in writing, not willing to answer questions or cuts off your conversation—that’s your first clue, says Harkins, adding that people who are unable to stem the power of persuasion are at risk.
Once you’re involved with a broker and a firm, don’t stop asking questions, she says, especially with transactions you don’t understand—“Be sure to contact the firm.” Typical queries might include:
- Are you registered to sell securities, and is your firm registered?
- What costs or fees are involved?
- How does this investment make money?
- Can I get my money out?
- How are you being compensated?
- Are you in contention for a firm’s contest prize? What’s in it for you?
Here’s a superbly-crafted list of pointers you need to know about Working with your Investment Professional. It’s a must read.
Both experts agree: It’s always your right to feel empowered. So be empowered because It’s Your Money—not your broker’s or the firm’s.
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