Historians have documented financial fraud as far back as 300 BC. In a scheme known as “bottomry,” shipowners would borrow money, offering their ship or cargo as collateral. If the ship sank at sea, the borrower didn’t have to repay the loan, and unscrupulous shipowners would intentionally sink their ships or falsify losses to avoid repaying debts.
Financial fraud today has evolved into a significantly more sophisticated and widespread threat. From Ponzi schemes to crypto scams, Canadians must be vigilant and learn to spot the signs of fraud to protect themselves from these complex and cunning tactics. Here’s eight things to keep in mind.
1. Verify credentials and licences
Financial advisers must register with the securities regulator in each province or territory where they do business. You can verify that the person giving you investment advice is licensed using free search tools, such as the CSA National Registration Database or the CIRO AdvisorReport. Simply enter the adviser’s name into the search tool to confirm their credentials. You can also view any disciplinary actions against registrants using the list of resources found here.
Many advisers have sought out additional training and education. They might have one or several financial designations, such as Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA). Advisers using or advertising these designations must be in good standing with the governing bodies that oversee those designations, and you can search the adviser’s name in their member directory to ensure they are in good standing.
2. If it sounds too good to be true, it probably is
Risk and return are inextricably correlated. Any investment that promises high returns is, by definition, high risk. And any investment that claims high returns with low risk is likely a scam. Remember, there are always two sides to a trade. If someone is selling you a low-risk, high-return investment – why aren’t they keeping it for themselves instead?
3. Beware of unsolicited investment offers
Fraudsters increasingly target victims through online platforms and social-media groups. The CSA recently warned of fraudulent social-media “investment groups” that exploit unsuspecting investors. Always approach any unsolicited offers with extreme skepticism and think twice about sharing your personal information with anyone you don’t know and trust.
4. Understand the investment
Investing can be complex. By obfuscating facts, using jargon or lingo, or even inventing terminology, fraudsters often rely on confusion tactics to exploit victims. Take the time to research and ask them to send you supporting information for any claims they are making. A legitimate adviser or investment firm should be transparent and willing to explain everything clearly.
5. Avoid pressure tactics
Fraudsters often pressure potential victims with limited-time offers. High-pressure sales tactics are a serious warning sign. Legitimate investments allow you time to think, ask questions and seek advice. No legitimate investment opportunities are urgent enough to force you to make an uninformed decision.
6. Consult a trusted financial adviser
If you need clarification on an investment, consider paying another financial adviser or planner for a second opinion. Fraudsters often discourage victims from seeking second opinions from outside professionals, as it increases the likelihood of their scam being exposed.
7. Stay informed about current scams
Keeping up with the latest fraud schemes and tactics can be an effective preventive measure. Many provincial regulators and organizations such as the CSA (Canadian Securities Administrators) and CIRO (Canadian Investment Regulatory Organization) regularly publish alerts on emerging scams. Familiarizing yourself with these warnings can help you recognize fraudulent behaviour early on.
8. Trust your instincts
Lastly, if something feels off, trust your instincts. It’s better to miss out on a legitimate opportunity than fall victim to fraud.
Investment fraud can happen to anyone, but you can significantly reduce your risk with the proper knowledge and vigilance. In today’s rapidly changing financial landscape, staying informed and cautious is your best defence.
Mark McGrath is a Squamish, B.C.-based certified financial planner and associate portfolio manager with PWL Capital Inc.
