Defense Against Fraud

February 21, 2017

 As the market the market grinds to new highs, greed is settling in. It can be often in these times that fraud is easiest to fall for. AARP recently released a survey sponsored by their Fraud Watch Network that helped identify some of the key characteristics of the victims of fraud. Understanding our own vulnerabilities can be an important step in guarding ourselves against making poor investment decisions.


AARP’s survey interviewed over 1,000 investors and found that nearly 25% of them were victims of fraud. Part of the survey’s goal was to discover if there were any risk factors that made someone susceptible to these investment scams.


The first factor was age, as we grow older, our risk for fraud increases. Unfortunately, there is not a lot that can be done about the aging process but it is important to recognize that it happens to all of us. Sadly, this is a well-recognized risk and many perpetrators target the elderly. Asking for help or at least for someone to review potential investments can be crucial. If you have a trusted professional, friend, or family member, don’t be afraid to lean on them to help guard yourself.


The next factor is gender and the study shows that men are more likely to fall for a scheme than women. Research has shown that men tend to take more risk and sometimes recklessly so. Especially at a time when the market is riding high, it can be tempting to reach for new investments to try and outpace the market. Men tend to be more attracted to unregulated or illiquid investments believing that their uniqueness somehow equates to higher returns.


The last major factor is the belief that money is a measurement of success. Whether intentional or not, many of us are susceptible to this even if we don’t articulate it as succinctly. If you see a nice car or a nice home and think that the owner must be successful, then in some ways you hold this belief.


Recognizing these characteristics can help identify yourself as someone who is vulnerable. Everyone is at risk but it can be helpful to understand who is being targeted as well. Sales pitches are increasing as more wealth is being accumulated in the markets. Even professionals can be at risk in an environment like this. One of the most fascinating data points is that those who have fallen for fraud in the past are still more likely to hear sales pitches than average. It might be that they feel the need to make up for losses in the past.


One of the easiest ways to protect yourself is to understand what you are investing for. Once you have set up goals and know you are on the right path, you can lessen the fear of needing higher returns to make it through all of retirement. Understanding your own situation and your own behavior profile can be crucial in making sure you don’t become a fraud statistic yourself.

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