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Anyone can fall victim to investment fraud – whether it's someone who's been investing for years or a complete novice to the world of stocks and bonds. A recent survey by the Canadian Securities Administrators (CSA) underscores this universal vulnerability: almost 30 per cent of respondents believe they've been approached with a fraudulent investment scheme at least once in their lives.

"People often think 'investment fraud won't happen to me'," says Sarah Bradley, vice chair of the CSA. "But the survey shows that Canadians have a one in three chance of being exposed to investment fraud."

Being aware and informed is the best defence against investment fraud, says Ms. Bradley, who is also chair and CEO of the Nova Scotia Securities Commission. She lists five key things investors should know to avoid becoming victims of investment fraud:

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  1. Know your investment goal. It’s easier to determine what types of investments are best suited for you – and avoid ones that may be questionable – if you're clear about your financial goals, time horizons and risk levels. Collaborating with a registered financial adviser to prepare an investment plan is a good way to help identify and crystallize your investment goals, says Ms. Bradley. Once you have a plan, make sure you review it at least once a year or when there are any changes in your financial or life circumstances.

  2. Know whom you're dealing with. In a 2012 CSA survey, almost half of all investors said they had a registered financial adviser – an improvement from 2009, when only 46 per cent had one. But among those with advisers, 60 per cent acknowledged they did not check the qualifications and background of the person to whom they were entrusting their investments. This due diligence is critical, says Ms. Bradley. Investors can use the CSA’s National Registration Search to start this process in both English and French.

  3. Know what you're investing in. CSA’s research also reveals that most Canadians lack a solid understanding of their investments. Only 12 per cent of respondents in a recent CSA survey had a realistic idea of what market returns should be. “Sixty per cent chose to not even guess – they had no idea,” says Ms. Bradley. Working with a qualified financial adviser is key, she adds. The CSA also has numerous resources on its website to help Canadians understand key investing concepts.

  4. Know the red flags of investment fraud. The signs of a potentially fraudulent scheme become easier to spot when you know what they are: guarantees of high returns with little or no risk, tax-free offshore investments, limited time offers, and insider opportunities that are “exclusive” to you and a select group of investors. “Some fraudsters might befriend a respected or influential member of a group and then use this person to recruit new investors,” says Ms. Bradley. “In this type of affinity fraud, investors lose hard-earned money to individuals they thought they could trust.” If it sounds too good to be true, it probably is.

  5. Know whom to contact for help and resources. Whether it’s to research a prospective financial adviser, to find out more about investing, or to report a possible fraud, it’s important for investors to know where to go for information and help, says Ms. Bradley. The CSA website is a good place to start. A “local investor education” section links site visitors to the securities regulator in their province or territory.

"By knowing these five things, investors can have a greater level of awareness and take steps to prevent investment fraud," says Ms. Bradley. "Just having that extra bit of knowledge can give you so much more peace of mind.  "

Canadian Securities Administrators

Securities regulators from each province and territory have teamed up to form the Canadian Securities Administrators, or CSA for short. The CSA is primarily responsible for developing a harmonized approach to securities regulation across the country.

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