Easy Habits to Avoid Investment Fraud
“What’s the first thing you do when you get into a car?”
“Buckle your seatbelt?”
“Check the mirrors?”
“Start the car… ?”
“Lock your doors.”
My driving instructor was a newcomer to Canada, and grew up in a city with a very serious crime problem. Although Winnipeg is relatively much safer, he made a good case for keeping this habit.
It may sound a bit paranoid, but he said that in the very unlikely instance someone did try to mug him in his car, this easy-to-learn habit could protect him someday. It seemed prudent and it has stuck with me.
Similarly, when it comes to fraud, studies show we could all stand to be a little more careful. The easiest way to do that is by developing good habits.
A recent study of Manitoba investors focussed on investor behaviour trends in the province. As you may have guessed, fraud came up as an important topic.
Fraud is more prevalent that you may think
One out of every four Manitobans has been approached with an investment fraud attempt.
About three percent of Manitobans have invested money in a fraud–on par with the national average. Three percent may not see like a lot, but that is more than enough people to fill every seat at IG Field. And it’s also an under-reported crime.
Losses range between $1,000 and $10,000, but some individuals have lost tens or even hundreds of thousands of dollars to scammers. And it’s not just one group—fraud impacts people of all ages, occupations, and income levels.
In many instances, this money has gone to criminals overseas with little chance of recovery. Considering that fraud is, statistically, a greatly under-reported crime, our province is losing millions of dollars to fraud each year.
Anyone can be a victim
In Manitoba, only half of respondents said they were just as likely to be a fraud victim as anyone else.
The first thing to understand about fraud, is that ANYONE can be a victim. It doesn’t matter your age, gender, IQ, who you vote for, or how big your bank account is. An orthopedic surgeon is just as likely be targeted by fraudsters as a long-haul truck driver.
Just like my driving instructor in my story at the beginning, knowing that there is a real possibility that you may be a victim of fraud is your best, first defence against it happening.
Knowledge is Power
About half of all Manitobans fall into the ‘low’ investment knowledge group according to the survey, which can make you more susceptible to fraud attempts.
Along with being aware you could become a victim of fraud, it is important to arm yourself with the common warning signs.
And the research says that many of us are still unclear on the warning signs of a fraud. Only about one third of those surveyed knew what to look for, while 40% did not know, and 25% were flat-out wrong.
One in three people answered that you can trust an investment if a friend has also invested, which is absolutely NOT correct! You must do your own homework – for yourself.
’Locking Your Doors’ to Investment Fraud
Fortunately, you don’t have to be Warren Buffet to understand how to protect yourself from an investment fraud. Here are four simple tips:
- Check Registration
Always check the registration status of any person or company trying to sell you on an investment – at aretheyregistered.ca. About 70% of those who lost money to a fraud said that the person or company they dealt with seemed professional and legitimate. However, if the individual or business is not registered in Manitoba, it’s a red flag that they may not be operating within local securities laws—whether they seem legitimate or not. In Manitoba, only 1 in 4 people say they checked their financial adviser’s background—ten points below the national average. We need to do better!
- Take Caution on Calls or Emails
About 60% of reported fraud attempts were made via a call or email from a stranger. So if you receive an unsolicited call or email about an investment opportunity, you should automatically be on your guard.
- Understand Investment Risk
Understanding risk is also important. Anyone offering you a low risk investment with high returns is probably lying to you. Educated investors understand that risk is inherently tied to reward – a low-risk investment is never going to offer a high return on investment (ROI). Understanding your appetite for risk is part of a registered financial adviser’s job as part of the Know Your Client rules.
- Expect Clarity, Transparency, and a Reasonable Pace
Other common red flags of fraud include pressure to make a quick decision, ‘exclusive offers,’ offering confidential or ‘insider’ information, overly-complicated investments, and avoiding questions. Real financial advisers should never rush you, operate on ‘secret’ information, try to confuse you, or dodge your questions.
It’s Good to be Skeptical
A lot of fraud is driven by FOMO – the Fear Of Missing Out. If you don’t get in on the ground floor of this exclusive deal, someone else will. Other people are going to get rich – why not you?
But a little healthy skepticism, and some good habits like checking registration status and hanging up on unsolicited calls touting low-risk investments, will go a long way to protecting you and your family’s hard-earned money in the long term.
When it comes to protecting what matters – your personal safety or your investments – it really is important to lock your doors.