Fraudsters tailor pitches to match profiles of targets
Are you college-educated, with an above average income and knowledge of financial matters? If so, do you think that makes you immune to investment scams?
If you also have the following characteristics, you actually fit the profile of an investment fraud victim (although anyone with money is at risk): Self-reliant when it comes to making decisions; optimistic; experienced a recent health or financial setback; open to listening to new ideas or sales pitches
The BBB has partnered with the Financial Industry Regulatory Authority (FINRA) to educate consumers about how to avoid investment scams. You can find a wealth of advice on investing and saving at SaveAndInvest.org.
Fraudsters are masters of persuasion and tailor their scams and pitches to match the psychological profiles of their targets. Married men who fit the profile above are more likely to become the victim of an investment fraud. A crook running a lottery scam is more likely to target an older, widowed, less educated woman.
FINRA has identified the following tactics crooks use to promote investment scams:
The “Phantom Riches” Tactic: dangling the prospect of wealth, enticing you with something you want but can’t have. “These gas wells are guaranteed to produce $6,800 a month in income.”
The “Source Credibility” Tactic: trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
The “Social Consensus” Tactic: leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m in — and so is my mom and half her church — and it’s worth every dime.”
The “Reciprocity” Tactic: offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now — half off.”
The “Scarcity” Tactic: creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”
FINRA offers the following tips for protecting yourself from investment fraud:
Practice saying “No.” End the conversation when someone starts pressuring you to make a decision.
Turn the tables and ask questions. Ask if the person, his firm, and the investment are registered with FINRA, the SEC or a state regulator.
Discuss the investment opportunity with family or a trusted financial professional. Be skeptical if the seller tells you not to do so.
FINRA has created a Scam Meter that helps you determine whether an investment may be a scam. It includes four simple questions with multiple choice answers and provides immediate feedback.
To use the Scam Meter, go to SaveAndInvest.org, click on “Fraud Center”, and then click on “Is it a scam?” There’s also a Risk Meter with 12 questions that will help you gauge your personal vulnerability to investment scams. Randy Hutchinson is president and chief executive officer of the Better Business Bureau of the Mid-South.