A recent study commissioned by the AARP Fraud Watch Network found that “older people who are active investors and who prefer unregulated investments may be more susceptible to investment fraud.” The study was carried out by reaching out to “200 known victims of investment fraud” for telephone interviews, as well as conducting “800 interviews with members of the investing public.” So why are older people more susceptible to investment fraud? What’s changed in recent years? The answer is two-fold. For one, due to the decline in traditional pensions, people are investing money on their own more often than in past generations. Technology is also to blame because it “makes it easier for scam artists to reach larger numbers of people, by telephone or email.”
But certainly not everyone from the older generation is susceptible to investment fraud. The report wanted to pinpoint the exact traits to help “explain why some people are more susceptible to investment fraud” in order to devise strategies to prevent it in the future. According to Doug Shadel, lead researcher for the AARP Fraud Watch Network, the study found that “victims were more likely to be men 70 or older, and they tended to be risk takers.” He added, “about half of fraud victims agreed that they did not mind taking chances with their money, as long as there’s a chance it might pay off.” Additionally, “nearly half of fraud victims, compared with less than a third of general investors, agreed that the most profitable financial returns are often found in investments that are not regulated by the government.”
The report also found that victims were “more likely to report valuing wealth accumulation as a measure of success in life and being open to sales pitches.” Other investment fraud victim traits the report found included receiving frequent targeted “phone calls and emails from brokers” and victims were “more likely than general investors to respond to remote sales pitches, including those delivered in television commercials.”
So how often are the elderly being targeted for investment fraud, and why do so many fall for it? Just how much money are people losing each year? For starters, the Consumer Financial Protection Bureau claims that about 17% of “Americans 65 and older report being the victim of financial exploitation.” Some believe the reason why so many older Americans fall victim to investment fraud is because of “mild cognitive impairment, a condition that can be a precursor to dementia and can diminish an older person’s ability to make financial decisions.” As a result, financial losses among elderly investment fraud victims is estimated to be billions of dollars each year!
But what do investment fraud scams look like? Are there ways to protect against them? A good rule of thumb to live by is, if it sounds too good to be true, it probably is. Unfortunately, people are falling for scams that sound fake or hard to believe at first, like “gold investing, real estate schemes, and even one involving leases on A.T.M.s,” but Shadel says victims often end up being persuaded in some way, sometimes “because of word of mouth from friends or family.”
To avoid falling victim to investment fraud, it’s important to recognize if you have “a predisposition toward risky behavior, like being open to pitches.” According to Shadel, another way to protect against investment fraud is “to deal only with regulated brokers and investments, and to ask and check.” What is “ask and check?” It’s simple. “If you get a call from a broker, ask if he or she is registered with state and federal securities regulators.” If they respond “yes,” follow up and check to see if it’s true by checking the “broker’s background though Finra, the Financial Industry Regulatory Authority” at www.finra.org, or by “calling 800-289-9999.”