Identifying and protecting yourself from fraudulent investment products or financial scam artists
Identifying and protecting yourself from fraudulent investment products or financial scam artists
The financial concerns commonly faced by seniors are at the forefront of Canadians’ minds during senior’s month, 2016. Many investing seniors are seeking to maximise their retirement income. In the current low interest-rate environment this often results in them steering away from conventional GICs or government bonds, towards higher-yielding investments that are often riskier than GICs and may have complex features that are not well understood by the investor. In the search for high returns, the investor may become more susceptible to falling victim to fraud or investment scams. We spoke with David Borenstein, manager of Investigations at the office of the Ombudsman for Banking Services and Investments regarding the trends OBSI sees relating to fraudulent investments.
In your experience, who is most likely to fall victim to financial frauds or scams?
Unfortunately, those seeking higher “guaranteed” income are often susceptible to fraudulent investment schemes. While the investment offer appears too good to be true, it’s quite reasonable for someone to accept reassurances from someone purporting to be an “expert” and who they have some reason to trust. Fraudsters rely on relationships of trust and are often family members, friends or members of the same group (religious, cultural or other) as the fraud victim.
Are there any similarities you’ve noticed in the fraudulent investments you’ve come across?
The fraudulent investments are often presented as “very safe” investments with significantly higher “guaranteed” interest payments than would normally be available on government bonds or GICs. The investments are often presented as unique opportunities that are only available to select clients and therefore account agreements, disclosure documents and other documentation may be scant. While the fraudsters can be extremely convincing, there are ways to detect potentially fraudulent investments.
Do you have any tips for consumers looking to invest?
If it seems too good to be true, it probably is. An investment that provides a guaranteed return that is significantly higher than government bonds may be fraudulent. If not, either the return or the risk are probably misrepresented. Think of it this way, would you agree to pay 12% interest on your mortgage if other mortgage lenders were you offering rates of 5% or less?
Can an investor trust their advisor to consistently make responsible financial investments?
Investment advisors must be licensed and any investment product they sell must be approved by their dealer. Before purchasing any investment, confirm that it has been approved by your advisor’s firm. Of course you can start by asking the advisor. If the advisor says this is a “special” arrangement or something that they are selling on the side, then you should certainly steer clear. However, the only way to be entirely sure is to contact someone senior at the firm such at the chief compliance officer. I’m not suggesting that you should call someone senior at the firm every time you buy an investment, but there’s no harm in confirming if an investment offer seems too good to be true. If the product has been approved by the dealer, confirm that you can hold it in your investment account with the dealer and, if not, it’s fair to ask why.
If you were to offer seniors one piece of advice when looking to invest with an advisor what would it be?
Don’t “buy the magic beans”. Ironically, it seems that those who are most sceptical about the banking and investment industry are often the most susceptible to fraud. Investors sometimes believe or are convinced that their “really good” investments are available only to the select few. The fraudster may play on the relationship of trust to persuade the investor that they are getting preferred access to something special. The fraudster will often ask the investor not to discuss details of their investment with others. Keep in mind that most legitimate investments are readily available to the general public and are subject to regulations.