Avoiding Investment Scams

Posted on Friday 15 May 2015

We have covered credit card fraud before on this blog, and in this article we return to a similar theme. According to the 2012 CSA Investor Index, 27% of Canadians believe that they have been targeted for investment fraud at some point during their lives. Worse still, 4.6% of Canadians believe that they have been the victim of investment fraud. Over half of those affected lost their entire investment, and most of the remainder lost over half. Seniors should be especially careful. Fraudsters love to target the elderly, hoping to find easily-confused seniors with big, juicy retirement funds. With the help of these tips, they will find well-informed, appropriately suspicious investors instead.


Don’t let yourself be rushed. Scammers love to use “limited-time offers” or hot deals that will go away forever if you don’t act now. They want you to act before you can think, and especially before you can research their credentials. Often, fraudsters will claim to have secret information that will make you a lot of money if you can exploit it before it becomes public knowledge. Reputable advisors will give you a chance to think over an investment opportunity.

Ask questions. Fraudsters try to target the uninformed and avoid savvy investors: the rate of return from pitching to the well-informed just isn’t worth it. Asking questions can be enough on its own to make a fraudster back off. In particular, ask for the investment prospectus. If there isn’t one, don’t invest. If you don’t understand the product, don’t sign anything. Reputable advisors will be happy to talk you through an investment.

Check credentials. Fraudsters will look and sound convincing. If they didn’t, they wouldn’t make money. Before investing with any advisor, do a background check. CSA/ACVM provides free online tools for checking your advisor’s credentials. You can also see if they have ever been disciplined by an industry body or a provincial securities commission. Needless to say, any disciplinary history that isn’t as pure as the driven snow is a red flag. Ideally, you should only work with an advisor who is a member of a self-regulatory organisation within the industry, like the MFDA or IIROC. Check the credentials of the investment product itself, too. Products that aren’t scams are usually registered with a provincial securities commission. To find out if this one is, call your securities commission and see if they have ever heard of it.

Beware of high guaranteed returns. Unfortunately, it is difficult to get a high return on your investments. A boring but safe savings account is likely to have an interest rate of about 1%. There are plenty of p erfectly legitimate investments out there with a higher return , but they tend to carry a correspondingly higher level of risk. An ordinary, diversified investment portfolio might carry an annual return of, say, 5%, and some of the investments will be calculated risks. A guaranteed rate of return of 10%, then, is almost certainly a scam.

Just because your friend made money, doesn’t mean you will. See above: a high guaranteed return is a gigantic red flag. According to the CSA Investor Index referenced earlier, 12% of fraud attempts are affinity frauds: the target is introduced to the fraudster by a friend or relative. Furthermore, some common investment frauds like the Ponzi Scheme really do pay out to some of the early investors. Your friend might have made a whole pile of money , but that doesn’t mean that you aren’t being played. Pay attention for the other warning signs listed here.


Report your suspicions. The more fraudsters that end up in jail, the rarer investment fraud will become. If you believe that you have been targeted by an investment fraudster, report it! Fraud reporting systems vary from province to province, but a good place to start is your province’s Securities Commission. You should also contact your local police department or the RCMP.