Building strong relationships and working closely with clients, being aware of scams that could target them, and stepping in to provide support are some ways advisors can help.
Sign up for the new Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.
Elke Rubach, principal of Rubach Wealth Holistic Family Advisors in Toronto, was suspicious when her mother told her a cousin in Germany had died and left her money.
“[My mom] said, ‘I don’t remember her name but I got an e-mail,’ and I said, ‘Uh-uh. No, no, no,’” Ms. Rubach says. “There is no such thing as a cousin who died and left $1-million. Why would they?”
She stopped her mother from responding to the e-mail, but not everyone is as lucky.
Last year was a significant year for financial losses, says Sue Labine, a call centre supervisor for the Canadian Anti-Fraud Centre, a government agency in North Bay, Ont. She says there was a 130-per-cent increase in fraud reported losses from 2020 to 2021, totalling $379-million. That is more than double the amount of $166 million in 2020 and the biggest increase since 2015.
“We also know that less than 5 per cent of victims report fraud, so those numbers could be higher than what we’re seeing,” she adds.
Fraud and scams are everywhere, and advisors can help prevent their clients from falling victim to them and losing large sums of money, Ms. Rubach says.
Apart from protecting client data and keeping their information confidential, she says taking the time to build a strong relationship with clients is also key.
“You need to develop the relationship so that if your client finds anything suspicious, they’ll feel comfortable enough to tell you that they think this thing is weird,” Ms. Rubach says.
That’s especially important for older or less technologically savvy clients who are more likely to fall for scams.
How to protect clients
Working closely with clients to create a financial plan also helps advisors identify potentially fraudulent activity. They can recognize when something out of the ordinary occurs, like a transfer request for large sums of money, Ms. Rubach says.
Meanwhile, Sean Hamilton, director, public affairs and member education services at the Investment Industry Regulatory Organization of Canada (IIROC) in Toronto, says advisors need to be aware of the red flags of investment scams so they know how their clients can be targeted.
The common scams IIROC has identified include cold calls to clients from firms with which they don’t do business; any claims for immediate, extreme, or guaranteed gains; any push for clients to invest right away, and anyone who contacts clients using public e-mail addresses like Gmail or Hotmail. The self-regulatory organization also issues investor alerts to the media and on social media about fraudulent activity.
Mr. Hamilton says advisors should be ready to move quickly if something happens.
“If you think your client may be subject to identity theft, fraud or a scam, you should try to get a hold of [them],” he says.
Ms. Rubach says the first thing she does is pick up the phone when she sees something suspicious from clients.
“I’m not an order taker,” she says. “I will make sure I talk to the person. It’s not that I won’t send you the money but I will ask, ‘What’s going on? Why do you need it? Is there a problem? Are you making a large purchase?’”
Taking time to confirm a client request and the reason for it helps prevent clients from falling for scams, says Jason Pereira, partner and senior financial consultant at Woodgate Financial Inc., a financial planning firm under the IPC Securities Corp. umbrella in Toronto.
While he’s never had to deal with the Nigerian prince or dead cousin e-mail scams, some of his clients have come to him with suspicious investment opportunities.
“Typically, it’s something in the private realm or some opportunity a buddy knows of or some start-up,” he says. “They’re being sold on it and sometimes they need the cold shower of reality.”
That means asking for contracts to run it past a lawyer and for documentation about the start-up.
“That will kill anything that isn’t close to legitimate,” he says.
Elder financial abuse
However, where he sees a lot of fraudulent activity is among the elderly who face financial abuse from people close to them such as family members or caregivers, saying that’s where the support is really needed.
“The honest truth is that the elder [client] knows they’re being taken advantage of; you can hear the fear in their voice,” he says. “That’s where I played bad cop on several occasions.”
It means telling elderly clients to inform the family member involved that their advisor says they [the client] would be endangering their retirement and ability to live in their home if they followed through with the demand.
However, sometimes despite the best advice from advisors, clients may insist on pursuing an opportunity.
Mr. Pereira says he lost a client to another firm, even though they proved that the other advisor lied about tax liability and the initial fee proposal.
“At that point, you can say, ‘I’m also done with this relationship,’” he says.
Overall, both advisors say they tell their clients never to be embarrassed to reach out if something doesn’t sound right.
“The thing is, fraud and scams are organized crime,” Ms. Rubach says. “They know what they’re doing.”
For more from Globe Advisor, visit our homepage.