Even if you have never been subjected to an investment fraudster’s sales pitch, you probably know someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go “where the money is”—or where it might one day be. And that means targeting athletes, entertainers and older Americans who are nearing or already in retirement. Your family's health history could be important for determining your child's health risks. Learn more about how to document your family's health history and share it with your child's doctor.
THE FACE OF INVESTMENT FRAUD
Recent research has shattered the stereotype of investment fraud victims as isolated, frail and gullible. Do you know anyone who meets the following description?
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Self-reliant when it comes to making decisions
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Optimistic
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Above-average income
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College-educated
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Experienced a recent financial or health change
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Open to listening to new ideas or sales pitches
If so, you know someone who fits the profile of an investment fraudster’s prime target.
THE PSYCHOLOGY OF A SCAM
We’ve all heard the timeless admonition, “If it sounds too good to be true, it probably is”— great advice, but the trick is figuring out when “good” becomes “too good.” There’s no bright line. Investment fraudsters make their living by making sure the deals they tout appear both good and true.
The truth is, we’re all at risk. Anyone with anymoney is bound to hear from a fraudster atsome point. But you can help protect yourselfand your family and friends by recognizing howinvestment fraudsters operate and by reportingsuspicious sales pitches and actual scams.They’re masters of persuasion, tailoring theirpitches to match the psychological profiles oftheir targets. They look for your Achilles’ heel byasking seemingly benign questions—about yourgoals, dreams, interests and stats. Once theyknow which buttons to push, they’ll bombardyou with a flurry of influence tactics, which canleave even the savviest person in a haze.
Common tactics include:
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“Phantom Riches”—dangling the prospect of wealth, enticing you with something you want but can’t have. “I can double your money for you.”
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“Source Credibility”—trying to build credibility by claiming to be a reputable authority or expert. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
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“Social Consensus”—leading you to believe that other savvy investors have already invested. “This is how— got his start.” Or “Everyone on the team uses — to manage their money.”
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“Reciprocity”—making you feel obliged to return some small favor to you (like a meal or a loan) with a big favor (handing over your money). “I’ll give you a break on my commission if you buy now—half off.”
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“Scarcity”—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.”
INVESTMENT FRAUD
Protect Yourself
If these tactics look familiar, it’s because legitimate marketers use them, too. But one key difference is that real deals will still be there tomorrow. So always take the time to stop and think before making an investment decision.
Here are three key strategies you—or anyone you know who fits the profile of a potential fraud target—can use to help distinguish good offers from bad ones:
1. Reduce your exposure
Use care when people say they can link you up with a loan or extra cash at no cost—or when people who want to manage your money offer you free meals or nights out on the town. This is what the “reciprocity” tactic can look like. It helps to have a refusal script ready. Simply tell the person, “I am not interested. Thank you.” Or tell anyone who pressures you, “I never make investing decisions without first consulting my—.” Fill in the blank with whomever you choose— your parents or an investment professional, attorney or accountant.
2. Look for persuasion red flags
You don’t have to remember each tactic by name. Instead, notice the emotions you feel when you see persuasion in play—and promise yourself in advance that you won’t make decisions about money when you’re feeling those emotions.
3. Ask and Check
A legitimate investment professional must be properly licensed, and his or her firm must be registered with the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) or a state securities regulator—depending on the type of business the firm conducts. So, before you give out information about yourself:
Ask:
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Are you and your firm registered with FINRA?
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Are you registered with the SEC?
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Are you registered with a state securities regulator? Which one(s)?
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Is this investment registered with the SEC or my state securities regulator?
Check:
Verify the answers by checking the seller’s background.
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An insurance agent:
State Insurance Commission
National Association of Insurance Commissioners
http://www.naic.org/
IDENTIFY THEFT
Identity theft occurs when someone obtains your personal information—such as your full name, Social Security number, birthday or mother’s maiden name—and uses it to take your money or to commit fraud or other crimes. ID theft is much more than an inconvenience— it can devastate your credit rating and your financial security.
How Does Identity Theft Occur?
A variety of ways. Some identity thieves go online, capturing usernames and passwords through keystroke-logging software hidden in instant messages, emails or freeware. Others “phish” for sensitive information by sending phony emails that pretend to come from a legitimate financial institution but that ask for information the firm would never request through email—such as confirmation of an account number, password, credit card number or Social Security number. Still others use the old-fashioned method of “dumpster-diving” to recover discarded account statements or other records. And some simply ask their targets for the information.
Protect Yourself
Here are some tips to help you avoid ID theft:
Keep your personal information private
Unless you’re applying for a loan, opening an account at a financial institution or dealing with your employer (or your school), do not give out your Social Security number—and avoid using it as a username, password or PIN. Keep your bank or credit card account numbers private, and do not share passwords or PINs for any financial accounts with other people.
Avoid inviting trouble
Safeguard your computer or laptop by installing a personal firewall and up-to date security software. Never respond to an email that asks you to reveal personal information, such as account numbers, your Social Security number and usernames, passwords or PINs.
Stay on top of your finances
Always read your monthly account statements, and alert your bank, brokerage firm or other financial institution if you see a transaction you didn’t authorize or if your statement doesn’t arrive. Check your credit report for free each year using AnnualCreditReport.com. And be sure to store financial records in a safe place, and shred—never simply toss out—documents containing sensitive information.
IF YOU SUSPECT A PROBLEM
If you think that your personal information has been stolen, immediately contact your bank, brokerage firm and other financial institutions, including credit card issuers, to notify them of the problem. And be sure to change your username and password or PIN for the account. For more tips, visit www.SaveAndInvest.org/NFL.
WHO WE ARE
FINRA, the Financial Industry Regulatory Authority, is an independent regulatory organization empowered by the federal government to ensure that America’s 90 million investors are protected.
The FINRA Investor Education Foundation is the largest foundation in the U.S. dedicated to investor education. The Foundation’s mission is to provide investors with high quality, easily accessible information and tools to better understand the markets and the basic principles of saving and investing. The Foundation’s SaveAndInvest.org website is a not-for-profit resource dedicated to improving your financial health.
FINRA and the FINRA Investor Education Foundation do not sell investment products, promote products or firms or offer specific investment advice.
Educational Tools
The FINRA Foundation, NFL Player Engagement and NFL Security have joined forces to give you and your family information and tools to spot and avoid investment fraud. Visit www.SaveAndInvest.org/NFL for:
IF A PROBLEM OCCURS
If you believe you have been defrauded or treated unfairly—or if you suspect that someone you know has been taken in by a scam—be sure to send a written complaint to a securities regulator.
Here’s where you can turn for help:
FINRA Complaints and Tips
9509 Key West Avenue
Rockville, MD20850
Investor Help Line: (202) 728-6964
Fax: (866) 397-3290
www.finra.org/complaint
www.finra.org/fileatip
SEC Office of Investor Education and Advocacy
100 F Street, NE
Washington, DC20549-0213
Phone: (800) SEC-0330
Fax: (202) 772-9295
www.sec.gov/complaint.shtml
Email a tip: enforcement@sec.gov
North American Securities Administrators Association
750 First Street, NE, Suite 1140
Washington, DC20002
Phone: (202) 737-0900
Fax: (202) 783-3571
http://www.nasaa.org/
The NFL can also help:
NFL Player Engagement
Phone: (800) 234-4NFL (4635)
NFL Security
Phone: (800) 635-109
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Source: Content provided and maintained by the FINRA Investor Education