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Investment Scams: Are Your Clients at Risk?

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As an advisor, you don’t recommend just any investment to your clients. You know their financial goals, investment time horizon and tolerance for risk, and you make suggestions that suit them at each stage in life. You provide sound advice and educational information that you hope makes your clients more savvy investors.

It’s no surprise, then, that many advisors are caught off-guard when a long-term client falls for an investment scam. Yet it happens a lot more often than you might think.

Defining investment scam

First things first. An investment scam isn’t a legitimate investment that loses money. You can recommend an investment in a blue chip stock in good faith, and the stock can tank. That’s unfortunate, but it’s not a scam. In an investment scam, your client is intentionally lied to or misled so that they put money into an investment that has no chance of paying off. In most cases, the investment never existed to begin with.

In an investment scam, your client is intentionally lied to or misled so that they put money into an investment that has no chance of paying off.

Older Canadians at risk

In 2014, more than 42,000 Canadians filed a complaint with the Canadian Anti-Fraud Centre (CAFC). Almost 15,000 were actually classified as victims of a scam. About 70% of these victims were Canadians over the age of 50. Also in 2014, victims of fraud reported total losses of almost $75 million, of which more than 85% was lost by victims over the age of 50.

These CAFC statistics cover all types of fraud, not just investment scams, but older Canadians are more at risk for those too. A recent study of Canadians over 50 (from the Ontario Securities Commission) found that 46% of respondents had been asked to buy a fraudulent investment. The same study also found that investment fraud affects 60 out of 1,000 older Canadians.

This could be because older Canadians have had more time to accumulate wealth, and are therefore targeted by scam artists. But that’s just one theory among many. What we know for sure is that older Canadians don’t have as much time to re-build their wealth if they fall victim to an investment scam. Losing your nest egg is far more devastating at 65 than it is at 25.

What we know for sure is that older Canadians don’t have as much time to re-build their wealth if they fall victim to an investment scam.

Advisors can’t be expected to monitor or be responsible for every decision a client makes. However, there are steps you can take to help educate your clients about spotting an investment scam, as well as reporting investment fraud if it does happen.

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