Identifying those ‘too good to be true’ investment opportunities is tougher than you might think.
Despite most Canadians saying that they are taking more steps to protect themselves from fraud in general, only 44% of those tested by the British Columbia Securities Commission identified all of the warning signs of investment fraud when presented with six scenarios.
While most people spotted most of the risks, that leaves many open to potential fraud; something that 12% of respondents said they had fallen victim to.
Men and women in British Columbia are roughly equal in their ability to spot warning signs, but age appears to bring wisdom, with 65% of those aged 55+ being most likely to identify all six scenarios as warning signs, compared with 20% of 18- to 34-year-olds.
Self-directed investors including those using robo-advisors were more likely to spot all 6 (68%) than investors who work with banks or financial advisors, or who invest in something other than securities.
"B.C. residents aren't naïve when it comes to investment fraud, with 65 per cent correctly identifying at least four of the six warning signs," said Pamela McDonald, the BCSC's Director of Communications and Education. "But one missed sign is sometimes all it takes for someone to be victimized."
The signs they were shown were:
- Guaranteed high returns with little or no risk
- Moving money outside the country to avoid tax
- A strong push to act now
- An offer of inside information
- An offer available only to a select few
- Being encouraged to invest because friends and family have already done so
You can’t trust your friends and family
When it comes to investments, most respondents are less trusting of their friends and family than they might be in other matters; 61% identified that a recommendation from someone close could be a sign of an investment fraud.
That was the least recognized sign though, with guarantees of high returns with little or no risk spotted by 77%.
The BCSC study follows a survey by TD that shows that Canadians are vulnerable to fraud.
The regulator says that most people believe that reporting investment fraud is worth the trouble.
"We are encouraged to see that most people are willing to report investment fraud, rather than just letting it go," said Doug Muir, the BCSC's Director of Enforcement. "Our investigators need the public's help. The sooner we know about scams, the better our chances of preventing further losses."
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