How to Recognize—and Avoid—an Investment Scam

March 16, 2016

We all think it could never happen to us. But investment fraud can happen to just about anyone – even those who consider themselves financially savvy. Research conducted by the Canadian Securities Administrators shows that 27% of Canadians believe they have been approached with a fraudulent investment opportunity at some point in their lives.

Could you be a target?

Simply being a physician makes you a target for scam artists. The general perception of physicians as busy high-income earners makes them an attractive target. Scammers know that many physicians are so focused on their practice that they may not have time to manage their finances, let alone carefully research an investment proposal. And because physicians often start their careers with significant debt, some may feel the pressure to “catch up” financially, making them more vulnerable to investment schemes that promise high returns.

Investment fraud can happen to just about anyone – even those who consider themselves financially savvy.

How you might be targeted

One common way for fraudsters to find victims is to ingratiate themselves with an identifiable group, like a religious or professional community. Investing with someone you know, either personally or via social networks, can give a false sense of comfort, especially when markets are volatile. This type of fraud is called “affinity fraud.” There have been instances of affinity fraud in which physicians have invested in fraudulent medical technology companies, only to lose their money.

Pre-retirees especially vulnerable

While anyone can become a victim of investment fraud, a report by the British Columbia Securities Commission reveals that Canadians in their 50s who have not yet retired are more susceptible than older Canadians. 1 The study shows that the most vulnerable in this group have little investment knowledge and are worried about running out of money during retirement. Other contributing factors include having unrealistic expectations about market returns; failing to understand the relationship between risk and return; or exposing oneself to risky sales situations.

How to protect yourself

  1. Know the signs of fraud.

    If you know what to watch out for when you’re approached with an investment opportunity, you are less likely to become a victim. Watch for these red flags:

    • High returns with little or no risk. All investments come with some risk. The higher the potential return on the investment, the greater the risk of losing some or all of your money.

    • Pressure to act fast. Fraudsters will try to pressure you into making a quick decision to avoid missing this “once in a lifetime” opportunity. They may claim this urgency is because of information the general public doesn’t have.

    • Claims of “insider information.” Scammers will often pitch investment offers as something that is exclusive—i.e., available only to a select few. If it really is insider information, it’s illegal and can put you at risk. More likely, this is just part of the scam.

    • Offshore investments. Fraudsters may tell you investing offshore is a great way to avoid taxes—but it’s also a great way for them to get your money out of Canada, out of the reach of Canadian authorities, and into their own hands.

    • Complicated investments. Legitimate financial advisors and investment companies have an interest in offering transparency. An overly complex investment scheme may be a tactic to confuse you into investing without asking too many questions.

  2. Keep your long-term goals in mind.

    Recent volatility in the markets may cause some investors to invest in dubious schemes in search of higher returns. But it’s important to remain realistic about current market conditions and your portfolio. Don’t let fear or uncertainty dictate your investment decisions, as this usually results in poor choices. Finding the right advisor who understands your distinctive financial needs as a physician is crucial.

  3. Get a second opinion.

    In helping you build your financial plan, your MD Advisor can recommend investment solutions to meet your short- and long-term goals. If you are considering a new investment opportunity outside of your plan, your MD Advisor can offer a second opinion—and flag potential risks.

  4. Report the scam.

    Only 29% of Canadians approached with a fraudulent investment opportunity reported it to authorities, according to research conducted by the Canadian Securities Administrators on investor knowledge, investor behaviour and the incidence of investment fraud. It’s important to report investment fraud, and even just a suspicion of fraud, to prevent others from becoming victims. You can report investment fraud by contacting your local securities regulator.

For more information about investment fraud, retirement planning or other financial planning topics, contact an MD Advisor. MD offers objective advice at every stage of your career—from medical school through retirement. Find an MD Advisor near you.

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