How to protect your clients from scams and fraud

Enjoy complimentary access to top ideas and insights — selected by our editors.

Investment scams are as old as investments themselves. But despite knowing this, it doesn't get any easier to avoid falling prey to them, whether you're a long-time investor approaching retirement — and in the vulnerable category of seniors more frequently targeted by fraudsters — or just starting out and captivated by the potential outsized returns thought to be available in the metaverse.

Here are five stories on how the industry is responding to the challenges of investment fraud.

Stemming the tide of elder fraud losses

Elder fraud has grabbed the attention of industry regulators, who are anxious to protect the approximately 54 million Americans aged 65 or older who find themselves at risk.

In 2021, U.S. seniors lost $147 million to investment fraud — up a staggering 213% on the previous year — in scams such as "pig butchering," in which a victim is encouraged to invest in a fake crypto exchange. Early returns "fatten up" the victim to encourage more investment before the money is spirited away.

Discussions between the NASAA, the SEC, FINRA and other agencies are now focusing on what advisors and other industry professionals can and should be doing to stem the tide.

Read more:

Seniors lose nearly $72,000 on average to fraud. Regulators want advisors to help.

A new wolf in old sheep’s clothing

Virtual real estate, NFTs and cryptocurrencies are among the investment opportunities being hawked in the metaverse with promises of big returns and little risk, the NASAA said in a warning to investors.

"Our experience with so-called investment opportunities found in the metaverse is that we see the same old financial scams simply dressed in new clothes and offered to investors in the metaverse," said NASAA President and Maryland Securities Commissioner Melanie Senter Lubin.

The NASAA's advisory notice emphasizes that some people "see [the metaverse] as new means to perpetrate financial scams and investment fraud" and offers insights into how advisors can protect their clients from metaverse scams.

Read more:

The metaverse is full of scams. Are your clients prepared?

The financial advisor as first responder in cyberattacks

What do you do as an advisor when you get a call from a panic-stricken client saying they think they have been the target of a cyberattack?

Act like a financial "first responder" with immediate advice and guidance, say Eric Sontag, president and chief operating officer at Wealthspire, and James Fritz, chief information security officer at NFP.

With cybercrime on the rise, Sontag and Fritz offer their recommendations on what advisors should do in the event of a client suspecting identity theft, a client's computer being compromised or encrypted by ransomware, and more.

Read more:

Cyberattack punch list: First aid for digitally defrauded clients

Shifting the focus on elder fraud from victim to criminal

The vast majority of Americans in an AARP survey — 85% — believe fraud can happen to anyone. But many of those same people believe that when older people are the victims, that they bear some of the blame.

"We blame the victim so much that families kind of fall apart when these things happen," said Kathy Stokes, the AARP's director of Fraud Prevention Programs. "Adult children are like, 'Oh my God, how could you be so stupid?'"

What's needed is a complete change in emphasis away from ageist stereotypes and onto the perpetrators: "Don't blame the victim," Stokes said. "Don't say the victim was 'duped.' Say, 'That criminal stole her money.'"

Read more:

How advisors can help older clients recover from scams

Spotting and stopping a scam before it happens

If it sounds too good to be true, it probably is. That may be some of the sagest advice there is for caution when investing, but millions still take the bait every year.

Knowing the warning signs, however, can help Americans — especially elderly ones more often targeted — avoid being taken in by scams and keep their retirement savings intact.

Financial Planning spoke to Kathy Stokes, director of Fraud Prevention Programs at AARP, and Bill Singer, an attorney with more than 40 years of experience representing defrauded investors, for their insights on what to look out for.

Read more:

4 red flags that a retirement investment is a scam