FINANCIAL BY DENISE NORBERG-JOHNSON
How do victims differ from nonvictims? The Financial Industry
Regulatory Authority (FINRA) Investor Education Foundation’s 2007 Senior
Fraud Risk Survey and the 2006 Investor Fraud Study by the Consumer Fraud
Research Group revealed some differences between the two groups. Almost
two-thirds of victims are self-reliant,
optimistic, college-educated, married
men earning above-average incomes.
This group is also more financially literate than nonvictims.
Almost three-fourths of victims have
owned risky investments, compared to
about half of nonvictims. Fraud victims
are 50 percent more likely to buy investment products from a salesperson who
is recommended by a friend and three
times more likely to attend a seminar
with a free meal. One out of five investors can’t spot persuasion tactics, such as
the claim of guaranteed returns that are
higher than historical averages.
Scammers go where the money is,
which often means targeting older investors—those who are near retirement or
already retired. If you have had a recent
health challenge or change in your financial situation, you are also an attractive
target. You can expect to face high pressure and should be prepared to recognize
some of the most common tactics scammers employ.
For example, the “scarcity” approach
is intended to create a sense of urgency
through a limited-time offer or a claim
that supplies are limited. The “reci-
procity” tactic offers a small favor, such
as a break on commission, in return for
a larger favor (e.g., your investment of
a substantial sum of money). Building
“source credibility” involves claiming
to be with a reputable firm or possess-
ing special credentials or experience. A
scammer who tells you about all of the
other savvy investors who are clients
is using the “social consensus” tactic.
Then there is the prospect of guaranteed returns that entice you with
“phantom riches” that are not possible
How can you protect yourself and
outsmart the scammers? For the “
scarcity” tactic, simply refuse to be rushed
into a decision. A legitimate investment
will be there after you have a chance to
think about it. If you don’t feel guilty or
obligated because you are offered something free, you will neatly sidestep the
power of the “reciprocity” tactic.
Verify credentials to ensure that
“source credibility” is not a false front. Use
BrokerCheck ( http://brokercheck.finra.
org) to see if a broker or brokerage firm is
registered with FINRA or the investment
adviser is registered with the Securities
and Exchange Commission (SEC). BrokerCheck provides employment histories,
regulatory action disclosures, violations
and complaints, and information on certifications and licenses. Also, use FINRA’s
Ask and Check section ( http://www.finra.
org/investors/ask-and-check) to help with
The “social consensus” tactic relies on
your concerns with what everyone else is
doing. If you don’t care what investment
choices members of your social group
or favorite organization are making, this
“affinity fraud” won’t work on you.
The “phantom riches” tactic relies on
your ignorance of history. In the past 75
years, stock market annual returns have
averaged just over 10 percent, and there
is no such thing as a guaranteed, risk-free investment.
You can also develop defensive tactics, such an exit strategy. Keep saying
“No, I’m not interested,” or say you will
think about the information, then end
the conversation. Ask specific questions
until you receive detailed information,
before you provide any information
about yourself or your financial situation. Insist on taking time to talk to an
accountant, lawyer, investment adviser,
or family member, especially if the salesperson has encouraged you to keep the
Make sure to add your name to the
Federal Trade Commission’s Do Not
Call Registry ( www.donotcall.gov) to
reduce the quantity of unwanted solicitations. Take a look at the Risk Meter
meter.aspx) to see if you have traits that
make you vulnerable to fraud, and use
the Scam Meter ( http://apps.finra.org/
meters/1/ scammeter.aspx) to answer
four questions to determine whether an
investment might be a scam.
If the worst happens and you become
the victim of a scam, or even suspect
fraudulent activity, file a complaint at
the FINRA website ( http://www.finra.
org/investors/file-complaint). The SEC
website has a complaint section that
also allows you to submit information
on spam email solicitations (http://www.
Knowing scam-avoidance strategies
will protect you, your company and your
employees, so consider sharing these
resources. Remember that information is
power, and it’s the best guarantee of building your wealth at an achievable rate.
Protecting yourself from investment scams
FOR THE LAST TWO MONTHS, I have offered information on choosing an honest,
responsible financial adviser. But all investments involve some element of risk, and
scam artists can victimize even the most sophisticated clients. This column offers
methods for identifying and protecting yourself from investment scammers who
want to separate you or your company from your money.
NORBERG-J OHNSO N is a former subcontractor and past president of two national
construction associations. She may be reached at email@example.com.