An unintended consequence of so many financial experts discussing shortfalls in retirement savings may be increases in investment fraud. Headlines continually warn that “most people have not saved enough for retirement.” Recommended solutions include remaining in the paid workforce longer, spending less, and paying more attention to investment strategies. The pre-retiree is increasingly worried about whether they will be able to fund their retirement. As they begin to believe they have not saved enough, their willingness to take greater investment risk or make financial decisions with less due diligence increases. The result is that more of the victims of investment fraud are between the ages of 50 and 64.
No longer is the stereotypical uninformed and uneducated individual the victim of investment fraud. Today’s victim is more likely to be a middle-aged male with post-secondary education and a good income, studies show. The question is why?
The fraudsters are no longer the run-of-the-mill criminal
Individuals committing financial fraud are sophisticated consumer profilers. The fraudster’s knowledge of the right emotional buttons to push and ways to extract informative personal details is purposeful and patient. Consequently the crimes are especially difficult to detect and deflect because the agile criminal is a quick and detailed study of the intended victim’s needs. The old mantra “if it looks too good to be true then it probably is” no longer holds true for investment fraud. Unfortunately sophisticated criminal methods mean that “successful frauds look just good enough to be true.”
The victims are willing to be persuaded
Modern investment fraud victims are: “More likely to be male, relatively wealthy, risk-taking, interested in persuasive statements, open to sales situations, and better educated than the general public. In general, both men and women between the ages of 50 and 64 are vulnerable to investment fraud, another study suggests. Simply due to their large numbers they are more likely to be victims. However, their pre-retirement life stage increases the importance of investment growth causing them to take greater risk with less due diligence. Some also try to compensate for losses due to the 2008-2009 global financial crisis or marriage breakup.
Everyone is susceptible to misjudging risk and falling for scams. The added worry about retirement funding shortfalls makes some people prime targets for these crimes. Not only is this financially costly but the emotional toll can be substantial (we blame ourselves for being duped). Most investors preparing for retirement need to follow this simple advice–”slow and steady wins the race.”
Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program. She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.