More On Legal & Compliancefrom The Advisor's Professional Library
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
Many Americans lack an understanding of reasonable investment returns, leaving them prey to scammers, according to a new report from the FINRA Foundation.
The report, released Thursday, is based on an online survey of 2,364 Americans age 40 and older conducted between Sept. 28 and Oct. 4, 2012.
Forty-three percent of respondents were attracted to “fully guaranteed” investments, 42% found an annual return of 110% for an investment appealing and nearly half liked the prospect of a daily rate of return of over 2%.
Respondents 65 and older were more likely to be solicited (93%), more likely to engage (49%) and more likely to have lost money (16%) than younger respondents. Respondents 65 and older were 34% more likely to lose money once solicited than those in their 40s.
Men were more likely to be solicited (87%), more likely to engage (42%) and more likely to lose money (14%) in a potentially fraudulent activity than women.
Eighty-four percent of survey respondents said they had been solicited with at least one of a dozen types of potentially fraudulent offers:
- 67% had received an email from another country offering a large amount of money in exchange for an initial deposit or fee
- 64% had been invited to an “educational” investment meeting that turned out to be a sales pitch
- 36% had received a letter stating they had won a lottery in another country, including a cashier’s check as an advance payment.
At least 16% of respondents said they had invested money in response to at least one of the likely fraudulent offers, and 11% acknowledged losing a large sum of money after engaging with an offer.
However, only 4% admitted to being a victim of fraud when asked directly, an underreporting rate Finra Foundation estimated at more than 60%. Their reasons for not reporting were that doing so would not have made a difference, they did not know where to report or they were too embarrassed.
“When it comes to financial fraud, America is a nation at risk,” said Finra Foundation president Gerri Walsh said in a statement.
“Fraudsters are very effective at reaching and enticing vulnerable populations into turning over their money, and far too few Americans are able to detect likely fraudulent sales pitches.”
Check out FINRA Alert: Brokerage Imposters Do It Old-Fashioned Way on ThinkAdvisor.