Older Americans have often been and continue to be the targets of various fraud including investment fraud. The SEC issued an Investor Alert for seniors in June of this year to help investors become more familiar with common “red flags.” The following are among the more prevalent practices to be aware of.
Promises of High Returns with Little or No Risk. Always high on the list, promises of high returns with little or no risk should cause concern. The SEC cautions that all investments carry some level of risk and that the potential for greater returns generally comes with greater risk. Seniors should avoid “can’t miss” or “guaranteed return” investment offers. The old adage “buyer beware” still offers sound advice.
Unregistered Persons. In an age where technology makes verifying the qualifications of investment professionals so easy, it is difficult to understand how often unregistered and unqualified fraudsters can find people ready to invest with them. Technology is not always easily adopted by some older Americans so it is important to have multiple options for individuals to find answers. Regulators have provided a number of ways to research the background of individuals and firms including registration/license status and disciplinary history:
- Search Security and Exchange Commission (SEC)’s Investment Adviser Public Disclosure (IAPD) online database.
- Search Financial Industry Regulatory Authority (FINRA)’s BrokerCheck online database.
- Contact State securities regulator.
- Contact SEC’s Office of Investor Education and Advocacy: (822) 732-0330
Red Flags in the Financial Professional’s Background. The records of SEC, FINRA and State securities regulators can be used to identify potential problems of a financial professional including a) employment at firms that have been expelled from the securities industry, b) personal bankruptcy, c) termination, d) being subject to internal review by an employer, e) a high number of customer complaints, f) failed industry qualification examinations, g) federal tax liens and h) repeatedly moving firms among others.
Pressure to Buy Quickly. High pressure sales tactics in any industry should be considered a red flag but when used by investment professionals the best advice is to walk away. Avoid “act now” offers and requests to make immediate decisions without allowing time for you to research the professional or the product/service being offered.
Free Meals. Be aware that “free lunch” seminars are often used to attract new clients and to sell investment products not to educate the public. The SEC recommends that if you plan to attend one, you should not commit to purchasing anything or opening an account while at the seminar. They say that even if the free meal does not come with a high-pressure sales pitch, you should expect the “hard sell” in subsequent contacts from the person selling the investment.
Additional Resources
- A Guide For Seniors: Protecting Yourself Against Investment Fraud
- Social Media and Investing: Tips for Seniors
- “Free Lunch” Investment Seminars: Avoiding the Heartburn of a Hard Sell: A FINRA Investor Alert about “free lunch” investment seminars.
Red Oak Compliance Solutions is here to help if you have any questions.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.