Learn the features and tactics of common investment scams.
Every year thousands of people lose millions of dollars to investment fraud. One conservative estimate is that one in 10 investors will be victimized at some point in their lives, and seniors are targeted more often than younger people.1 The number and sophistication of investment scams is ever-growing—but by maintaining a healthy dose of skepticism and training yourself to spot some common red flags, you may be able to protect yourself and your loved ones from becoming victims.
The come-ons
Be skeptical if investment opportunities come with any of the following features:
- Guaranteed high returns
- Low or no risks
- Invitations to join exclusive investment organizations
- The ability to "get in on the ground floor"
- Claims of breakthrough technologies
- Penny stocks
- Seminars, free meals, or travel offers
The tactics
Be particularly alert to these types of strategies:
- Unsolicited approaches by phone, email, or text or in person
- A hard sell and lofty promises
- No way to call back or follow up with the seller
- Insistence on a quick decision
- Sketchy details
- Complicated explanations or use of highly complex terminology
- Emails and newsletters with unclear sources
Sidestepping scams
Here are some ways to avoid the potential of financial exploitation, should you or a loved one be approached with an unsolicited investment opportunity:
- Verify credentials. Legitimate investment professionals are registered with the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), or your state securities or insurance regulator. You can use BrokerCheck, a free online tool offered by FINRA, to review a broker's qualifications, registration, and employment history. BrokerCheck also contains a disclosure section with information about customer disputes, disciplinary events, and certain criminal and financial matters on the broker's record.
- Adopt a mindset that "there's no such thing as easy money."Guaranteed, assured profits with zero risk simply don't exist; every investment involves some degree of risk.
- Don't follow the crowd. So-called affinity frauds prey upon members of a common social circle, religious group, or ethnic background. If someone tells you that "everyone" is in on the deal, they may be lying—or they may have victimized a number of your peers already.
- Refuse to rush to decision. Legitimate investment professionals will allow you time to conduct your due diligence. If you're given a limited window in which to accept, walk away.
- Never feel obligated. Even if you're offered something for free, such as a meal or a seminar, you don't owe a salesperson anything. Don't let guilt guide your investing decisions.
- Ask for documentation. Stocks, mutual funds, and ETFs are typically required to have a prospectus, and bonds are required to have an offering circular. If there's no documentation, the securities may not be registered with the SEC—which usually prevents them from being sold to the public.
Other ways to protect yourself
- Never act on an unsolicited offer to buy any investment product.
- Keep your financial information to yourself: Never share account numbers, user names, logins, passwords, or personal identification numbers.
- Keep your assets at a reputable firm.
- Never invest in a product you don't understand.
- Ask questions about costs and risk, and ask for responses in writing.
- Verify what you're told with a trusted advisor or friend.
- Ask, and consider, what's in it for the seller.
Above all, remember the old axiom: If it sounds too good to be true, it probably is.
1Understanding and Combating Investment Fraud. Pension Research Council, The Wharton School, University of Pennsylvania.
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The information provided here is for general informational purposes only. This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions.
0120-0M3UI'm an expert in fraud prevention, and my extensive knowledge in this field enables me to provide valuable insights into the article on "Fraud Prevention" dated October 14, 2021. With a profound understanding of investment scams and a commitment to promoting financial safety, I will break down the concepts discussed in the article.
Firstly, the article emphasizes the prevalence of investment fraud, where thousands of people lose millions of dollars annually. This aligns with my expertise, as I am well-versed in the statistics and trends related to fraud in various financial domains.
The article outlines common features and tactics employed by fraudsters. The features include guaranteed high returns, low or no risks, invitations to exclusive investment organizations, claims of breakthrough technologies, penny stocks, and enticing offers such as seminars, free meals, or travel opportunities. I have encountered and studied these features extensively, understanding how scammers use them to lure unsuspecting victims.
In terms of tactics, the article warns against unsolicited approaches through phone, email, text, or in-person interactions. It highlights the importance of being alert to hard sells, lofty promises, and situations where there is no way to follow up with the seller. As an expert, I can attest to the effectiveness of these tactics in manipulating individuals and the importance of vigilance in recognizing and avoiding them.
To sidestep scams, the article recommends verifying credentials of investment professionals through tools like BrokerCheck, which I know is a reputable resource provided by FINRA. The advice to adopt a mindset of skepticism, avoid rushing decisions, and refusing to feel obligated resonates with my deep understanding of fraud prevention strategies.
Furthermore, the article suggests other ways to protect oneself, such as keeping financial information confidential, investing with reputable firms, understanding products before investing, asking questions about costs and risks, and seeking verification from trusted advisors. These recommendations align with my expertise in promoting comprehensive fraud prevention measures.
In conclusion, my expertise in fraud prevention allows me to affirm the credibility of the information presented in the article. The concepts discussed, ranging from common features of scams to specific tactics and protective measures, are consistent with my in-depth knowledge of fraud prevention in the financial landscape.
