I am an older male and married. I’m also a war veteran who values wealth accumulation as a significant measure of success in life. Although I’m ideologically conservative, I’m willing to take risks and am open to unsolicited telephone and email sales pitches.
No, this is not a profile for an online dating site for open marriages. This is the demographic profile of Americans who are most likely to become victims of financial fraud, according to a new survey by the AARP Fraud Watch Network.
“While previous surveys in this area have developed a demographic picture of investment fraud victims — usually older, financially literate males who are more educated and have higher incomes — our goal with this survey was to learn about why people fall prey and how it can be avoided,” says Doug Shadel, Ph.D., lead researcher for the AARP Fraud Watch Network. “Meanwhile, today’s sophisticated technology makes it significantly easier for scammers to reach large numbers of investors.”
The Fraud Watch Network survey, conducted in August and September 2016, included interviews with more than 200 known victims of investment fraud and 800 interviews with members of the general investing public.
According to Shadel, “what emerges from this study is a well-rounded profile of the kinds of mindsets, behaviors and demographic characteristics that are correlated to falling prey to investment fraud.”
As advisors, you should be on the lookout for clients who match these descriptions and help educate them on the most common scams that could come their way.
The financial fraud universe
The world of financial abuse and identify theft is a vast one. Sometimes the thieves manufacture alluring Ponzi schemes. Other popular scams involve fake IRS phone calls, emails from oversees ‘royalty,’ or tactics that are closer to home — an appeal on behalf of a family member with an eye on their loved one’s nest egg.
The amount of thievery taking place in America varies as well. Many studies estimate the money lost to elder financial abuse alone at $2.9 billion. A 2016 study by True Link Financial, a San Francisco-based company that provides tools and services for seniors, and adults with disabilities, found that number to be a gross understatement.
According to AARP, today’s sophisticated technology makes it easier for scammers to reach large numbers of investors.
The True Link Financial research revealed that seniors lose $36.5 billion each year to elder financial abuse with approximately 37 percent of seniors affected by financial abuse in any five-year period. A breakdown of the problem:
- Financial exploitation: $17 billion is lost annually to financial exploitation, defined as when misleading or confusing language is used — often combined with social pressure and tactics that take advantage of cognitive decline and memory loss — to obtain a senior’s consent to take his or her money.
- Criminal fraud: $13 billion is lost annually to explicitly illegal activity, such as the grandparent scam, the Nigerian prince phishing scam, or identity theft.
- Caregiver abuse: Nearly $7 billion is lost annually to deceit or theft enabled by a trusting relationship — typically a family member but sometimes a paid helper, friend, lawyer, accountant or financial manager
A perfect storm for fraud
AARP’s survey notes that economic forces have converged to make the current environment ideal for investment swindlers to practice their craft.
“The decline in traditional pensions has prompted millions of relatively inexperienced Americans to take on the job of investing their own money in a fast-moving and complex market,” says Shadel. “Meanwhile, today’s sophisticated technology makes it significantly easier for scammers to reach large numbers of investors.”
The AARP survey found stark differences between the past investment fraud victims and regular investors in three areas:
- Psychological Mindset: More victims reported preferring unregulated investments, valuing wealth accumulation as a measure of success in life, being open to sales pitches, being willing to take risks, and describing themselves as ideologically conservative.
- Behavioral Characteristics: Victims reported that they more frequently receive targeted phone calls and emails from brokers, they make five or more investment decisions each year, and more of them respond to remote sales pitches — those delivered via telephone, email or television commercials.
- Demographics: Somewhat replicating the previous industry studies, higher percentages of victims were found to be of older age, male, married and military veterans.
True Link Financial research revealed that seniors lose $36.5 billion each year to elder financial abuse with approximately 37 percent of seniors affected by financial abuse in any five-year period.
To further educate your clients, one suggestion is to have them take the AARP Fraud Watch Network’s online quiz. There your clients can learn whether they possess the characteristics that may predict likely fraud victimization.
According to AARP, “Investors who score high on the quiz are urged to apply a new level of caution when they receive unsolicited investment overtures.” Also investors and clients should adhere to the following investor protection tips:
- Do: Invest only with registered advisors and investments.
- Don’t: Make an investment decision based solely on a TV ad, a telemarketing call or an email.
- Do: Put yourself on the Do Not Call list.
- Do: Get a telephone call blocking system to screen out potential scammers.
- Do: Limit the amount of personal information you give to salespersons until you verify their credentials.
- Don’t: Make an investment decision when you are under stress. For example, when you’ve recently experienced a stressful life event such as the loss of a job, an illness or death of a loved one.
According to the True Link Financial study, risk and vulnerability can play an equal role in putting consumers in the crosshairs of financial criminals. “People often assume that those perceived as most vulnerable — widows, the very old, people with severe memory loss — are at greatest risk. In fact, risk equals vulnerability plus exposure. Seniors who are young, urban, and college-educated lose more money than those who are not.”
Unfortunately, those who are friendly and welcoming to others, including strangers, are most at risk. “Seniors described as extremely friendly lose four times as much to elder financial abuse, perhaps because they are approachable and may give strangers the benefit of the doubt.”