Canadians most vulnerable to an investment fraud are “pre-retirees” between 50 and 64 who have little investment knowledge and are worried about having too little to live on in retirement, according to study by the British Columbia Securities Commission.
A national study of “fraud vulnerability” has drawn a new profile of those most likely to fall victim to an investment scam. The most likely victims are not the elderly, but are people heading toward retirement who are worried they have not saved enough to live comfortably.
“They’re very afraid of running out of money,” said Patricia Bowles, director of communications and education at the BCSC. “Once you retire and you’re living off whatever you’ve got, the fear factor goes away. So you’re not jumping into these things because you’ve got a limited amount of time left.”
The BCSC surveyed 2,500 people across Canada who were age 50 and over, presenting them with a clearly fraudulent investment scenario in which investors are promised returns of 14 to 25 per cent per month. Three-quarters of respondents said the offer sounded too good to be true, and they would not pursue it. But 19 per cent said it sounded like an opportunity worth pursuing, and 7 per cent said they didn’t know what they would think about the offer.
The BCSC also found 43 per cent of people surveyed did not understand the idea that investments with higher rates of return had higher associated risks.
The study concluded that people are more vulnerable to risky investments if they have an unrealistic expectation of the current rates of return. Only 25 per cent of those surveyed, for example, had what the BCSC considered a realistic expectation to earn 4 per cent or less annually on their investments in the current environment of low interest rates, while 35 per cent expected to earn more than 4 per cent annually and 40 per cent said they had no idea what a realistic return would be.
Thirty per cent of the 2,500 people surveyed said they have little or no savings, which the BCSC said could put them most at risk of falling victim to a scam. More than half of the people surveyed also said they regularly get involved in sales situations that the BCSC considers risky – including attending sales pitches, listening to entire sales pitches when contacted by phone, giving away personal information in exchange for free promotional materials or reading unsolicited investment e-mails.
“You add that all up, and it’s a perfect storm for fraud artists,” Ms. Bowles said in an interview.
The survey found that 17 per cent of Canadians over 50 believe they have already been the victim of an investment fraud at some time in their lives, a number that jumps to 29 per cent among people who say they are active investors.
Ms. Bowles said the BCSC is concerned that recent volatility in the markets is going to cause more people to participate in frauds, because it makes it easier for con artists to attract investors to dubious schemes that promise high returns.
The BCSC launched an education campaign in the fall in ethic newspapers and other media, warning investors in Chinese and Punjabi about the traits of frauds. The campaign, which appears in British Columbia only, is being rolled out in English starting this week with ads in newspapers and on the radio.
WHO IS MOST VULNERABLE TO FRAUD?
* Pre-retirees between 50 and 64 who fear they won’t have enough income in retirement.
* Individuals who don’t understand that higher rates of return are associated with greater risks.
* People who have unrealistic expectations about the current market rate of return on investments.
* People who involve themselves in risky sales situations, such as attending sales seminars, listening to entire telephone sales pitches or reading unsolicited investment e-mails.
* People with little to no investment savings.
* People who consult with family and friends about investments rather than doing their own due diligence or seeking advice from a qualified adviser.
Source: British Columbia Securities Commission “National Investment Fraud Vulnerability Report”