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Ask and Check: Using Social Influence to Combat Investment Fraud
NASACT Annual Conference – August 15, 2011
Investor Protection Campaign for Older Investors
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FINRA Investor Education Foundation
► Established in December 2003
► Natural outgrowth of FINRA’s long-standing mission to protect investors
► Mission: To provide investors with the tools and information they need to better understand the markets and the basic principles of saving and investing.
► Awards grants and manages targeted projects focused on investor education and protection
► www.finrafoundation.org, www.SaveAndInvest.org
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Major Research►Off the Hook (2003) USDOJ/AARP. A survey of 502
general population and 132 investment fraud victims.
► Investor Fraud Study (2006) FINRA/WISE Senior Services. A survey of 499 general population and 71 investment fraud victims.
►Stolen Futures (2007) AARP Washington. A survey of 258 general population and 125 investment fraud victims.
►National Investor Risk Behavior Study (2007) FINRA and AARP. A survey of 371 general population and 101 investment fraud victims.
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Who is Most Victimized?
►Male
►55-65 years old
►More financially literate
►College-educated
►Self reliant
►Recent change in financial or health status
►Risk-takers
Victim demographic trends:
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Methods of Solicitation
• Top Methods of Receiving Unsolicited Investment Offers – Free Seminars (68%)
– Spam Email (64%)
– Direct Mail (61%)
– (Cold Calls are a distant 5th at 27%)
• While few seniors purchase investment products as a result of the free seminars, males (13%) are almost twice as likely as females (7%) to invest.
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Key Risk Factors►Own high-risk investments
►Relying on friends, family, co-workers for advice
►Open to new investment information
►Failing to check background and registration of financial professional and product
►Inability to spot persuasion used by fraudsters
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Common Features of Scams►Scams are creative
and consistently changing – Disaster Relief– Green Energy– Oil & Gas– “China” Stocks– Bird Flu– Terrorism
►New distribution channels are constantly being created– Seminars– Email & Internet– Direct Mail– Word of Mouth– Telephone– Text Messages– Answering Machines
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13.35
6.47
0
4
8
12
16
Avg # Tactics
Average # Total Tactics per Transcript
Investment
All Others
► Scam pitches are tailored to the “hot buttons” of targets► An investment fraud pitch is full of influence
Analysis of hundreds of undercover fraud tapes for Off the Hook Again: Understanding Why the Elderly Are Victimized by Economic Fraud Crimes (2006)
Investment Fraud Weapon – Social Influence
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Moving Beyond Warning Campaigns
Educating CampaignsWarning Campaigns
Specific Generic
Reactive Proactive
Short-term Long-term
Information-based Skills-based
Source: OECD, Examining Consumer Policy: A Report On Consumer Information Campaigns Concerning Scams (2005)
Investor alerts and warning campaigns have limited focus.
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Investor Protection Strategy
Teach Investors to:►Know that are vulnerable►Recognize persuasion
techniques►Take simple, highly protective
steps– Ask questions– Check answers
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Accepting Vulnerability – Risk Meter
Are you a high-risk candidate for fraud?►12 Simple Questions►Research-based►Identifies Areas of Concern for You►Provides Detailed Explanations and Resources
www.SaveAndInvest.org/meters/riskwww.SaveAndInvest.org/meters/risk
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Resisting Influence – Spotting PersuasionMost Frequently Used Tactics
►Phantom Riches: Dangling the prospect of wealth; something you want but can’t have
►Source Credibility: It is better to deal with credible people or individuals in positions of authority
►Social Consensus: If everybody wants it, it must be good
►Reciprocity: Doing a small favor in return for a big favor
►Scarcity: If something is rare or scarce, it must be more valuable
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►Those who counter-argue and actively question a communication are less persuaded
►Interviews of cons reveal that they do not like to be questioned
►Ask and check the registration status of the professional and investment.
►ASK if they are licensed to sell the investment and if the product is registered
►CHECK that they are licensed and the product is registered – SaveAndInvest.org or (888) 295-7422
Preventing Fraud – Ask and Check
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Outsmarting Investment Fraud Curriculum
►Outsmarting Investment Fraud– Understanding Fraud Risk
– Recognizing Persuasion Tactics used in Fraud
– Preventing Investment Fraud
►Incorporates moderated presentation, videos, and learning activities & exercises
►Full version runs 60 minutes; adapted to range from 20-60 minutes in different settings with varying audio-visual capacity
►Call to Action: Deputizes participants to warn others
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► Recruit investors to attend one of two workshops.
► Deliver new curriculum to the first group, then put both groups in a hypothetical “fraud situation”
► Measure difference in resistance to fraud appeal.
Field Testing a Curriculum
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Curriculum Changed BehaviorThose who had been to the OIF seminar responded positively to the fraud appeal 50% less frequently than those who had not.
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Program Participants► FINRA Investor Education Foundation► AARP► U.S. Securities & Exchange Commission► State Securities Regulators – Alabama, Arizona,
Colorado, Florida, Maine, North Carolina, Pennsylvania, Vermont, West Virginia and Washington
► Grassroots Organizations – SAIF, Seniors vs. Crime, Washington State Crime Prevention Association, others
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Free Resources►Partner Toolkit
►Curriculum CD
►Flip Charts
►Documentary DVD
►Handouts– Fighting Fraud 101– Investor Kits– Playing Cards
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Before You Invest, Ask and Check
SaveAndInvest.orgContact: Christine Kieffer
[email protected] or (202) 728-6970