(Special) - The B.C. and Ontario securities commissions have launched two useful websites highlighting investment frauds and how to avoid them.
The sites have various tools that investors can use to develop their "critical thinking" about investments, including a "scam meter" and notable "red flags."
The regulators say they don't have the capacity to stop all investment fraud, so they want to do a better job of educating investors.
Their focus on fraud is commendable, since many people lose money that way.
But it is only a half-step. What is missing from these sites is education on the non-fraud ways that investors are taken advantage of by the investment advisors, such as being steered to certain investment products just because they carry a high commission for the advisor.
Nevertheless, the anti-fraud focus is very much needed. A recent survey of 5,000 Canadians sponsored by the Canadian Securities Administrators found that one in three respondents reported having been approached with a fraudulent investment opportunity.
One surprising result of the survey is that 51 per cent of the respondents believe they are just as likely to be a victim of investment fraud as anyone else. It doesn't have to be that way.
The "Scam Meter" on the B.C. Securities Commission's InvestRight website (www.investright.org) would be a good place for investors to figure out their vulnerabilities and adjust their attitudes into a "you can't fool or manipulate me" mode.
The InvestRight site identifies numerous "Red Flags" that could be fraud attempts, including: (1) Guaranteed high returns – no risk; (2) Insider tips – get in now; (3) Offshore investment – tax free; (4) Profit like the experts; and (5) Great investment opportunity – your friends can't be wrong.
"If an investment that you are interested in sounds like any of the ones above, STOP! The Investment may be a scam."
InvestRight also provides the following counsel on ways to avoid scams and fraud.
1. Understand how your beliefs can affect your investment choices. Scam artists rely on you to react a certain way based on your beliefs, cultural, religious, or political. Your beliefs lead you to make assumptions and scam artists will feed on these to gain your trust. In order to protect yourself, you need to understand how scam artists can use your beliefs and assumptions against you.
2. Know yourself. Once you understand how your beliefs put you at risk of becoming a scam victim, you need to use other self-knowledge to help you properly decide what investments are suitable for you. You need to know your risk tolerance and investment goals and have a financial plan.
3. Know your investment. Once you know yourself, you need to assess if the investment matches your needs. Do the characteristics of the investment fit with your risk tolerance levels and investment goals? To help you do this, you should understand the basic types of investments and perform a background check on any company you are thinking of investing in.
4. Know your advisor. If you rely on others to find investments that match your investment needs, it is important you know them and ensure that they have the proper education and experience to assess your investment options. Properly choosing your financial advisor and doing a background check on each candidate are critical steps.
The website says that if you are unsure of any of these topics or need further guidance, then contact the B.C. Securities Commission (presumably if you are a B.C. resident).
The commission is holding a series of educational seminars throughout the province and has stepped up its approach to "affinity fraud," which denotes investment frauds that prey on members of identifiable groups, such as religious or ethnic communities, the elderly or professional groups.
"In addition to God's Fraud Squad, a successful program delivered in the Fraser Valley by two pastors, the commission has entered into a new partnership with the Mennonite Brethren Churches to reach 80 per cent of its churches in year one," the commission said in an Oct. 3, 2006, news release announcing the InvestRight program.
The Ontario Securities Commission has launched a "Check Before You Invest" campaign, with a new website at www.checkbeforeyouinvest.ca. It pulls together investment resources, including brochures, online tools and a public inquiries line.
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Wayne Cheveldayoff is a former investment advisor and professional financial planner. He is currently specializing in financial communications and investor relations at Wertheim + Co. in Toronto. His columns are archived at www.smartinvesting.ca and he can be contacted at wcheveldayoffyahoo.ca.
