Financial Knowledge May Not Protect You From Fraud
Are you a married, educated man, financially literate, with a high income? Well, congratulations. You've fit the profile of the person most likely to be talked into a fraudulent investment. Surprised? So was the NASD, a private-sector organization that helps regulate the securities industry, when it set out to study what persuasion tactics criminals use to siphon off the dollars of senior citizens.
The study analyzed 650 undercover audiotape recordings made by AARP of con men pitching fraudulent investments to investigators posing as senior citizens. The most common tactics were claiming to be from a legitimate business, dangling the prospect of wealth and riches in front of the prospect, and showing purported examples of others who had invested. In many cases, the swindler customized the pitch as he learned personal information about the victim.
Victims of investment fraud had more financial knowledge than the general population, the study found, as victims scored higher than nonvictims on eight financial literacy questions. A telephone survey of 165 fraud victims plus 150 adults over age 45 found that the victims were more likely to have a self-reliant personality. They tended to trust their own judgment when making investment decisions, even when seeking advice from others might be more appropriate.
"Check out the person and the firm you are proposing to deal with," advises Elisse Walter, senior executive vice president of regulatory policy and programs at the NASD. "Deal only with a knowledgeable professional who is candid and is willing to answer all your questions and spend the time with you." You can obtain the disciplinary records of any NASD-registered broker or brokerage firm by using NASD's BrokerCheck or calling 1-800-289-9999.
Financial services advertisements that promise "risk-free investments" or guarantee outlandish returns may flood your E-mail inbox. Investment fraud victims were more likely than nonvictims to say they would pay attention to a telephone or E-mail pitch from someone they didn't know and more willing to attend a "free" seminar on investing. In fact, the researchers found that fraud victims were even more willing to answer their survey questions than nonvictims. "Try to talk to someone you trust," suggests William Gentry, associate professor of economics at Williams College. "And try to verify things through a third party instead of just listening to someone who called you up and has a vested interest in who you buy from and what you buy."
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