Investment Fraud Prevention - National Crime Prevention...

NCPC WebinarPreventing Investment FraudAugust 21, 2013

FINRA Investor Education FoundationChristine N. Kieffer

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©2013 FINRA Foundation. All rights reserved.

National Crime Prevention CouncilWebinar – August 21, 2013

Investment Fraud Prevention


About MeChristine N. Kieffer► Senior Director, Investor Education

► Oversee Targeted Projects Investor Protection Campaign

Military Financial Readiness Project

National Financial Capability Study

► Co-Executive Producer, Trick$ of the Trade: OutsmartingInvestment Fraud

► Served as staff support on President’s Advisory Councilon Financial Capability

► Previously worked at Sallie Mae and NASDAQ

► Other? Mom to two boys



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FINRA & FINRA FoundationFinancial Industry Regulatory Authority (FINRA)

► Independent, non-governmental regulator for all securitiesfirms doing business with the public in the U.S.

► Protects investors and maintains market integrity in apublic-private partnership with the SEC

► Created through consolidation of NASD and NYSERegulation

► Regulation, enforcement, education

FINRA Investor Education Foundation

► Awards grants and manages targeted projects focused oninvestor education and protection


What Research Tells Us



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What We Learned: Victim Profile

• Male• 55-65 years old• More financially literate• College-educated• Recent change in financial

or health status• Self-reliant• Higher income• Risk-takers

Victim demographic trends:


What We Learned: Key Risk Factors

• Owning high-risk investments

• Relying on friends, family, co-workers for advice

• Being open to new investmentinformation

• Failing to check background andregistration of financialprofessional and product

• Being unable to spot persuasion



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What We Learned: Fraud Weapon



2012 Financial Capability Study

• More than three-quartersof U.S. adults thinkthey’re good at managingtheir finances…

• But only 14 percent aceda 5-question quiz onbasic financial concepts.

www.usfinancialcapability.org



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The Bias Blind Spot

• People acknowledge that biases affectother people’s choices and actions

– Less likely to see impact on themselves

• 80% of investors believe they are “aboveaverage” at spotting fraud


The Cons Agree



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► Victims get excited easily and act on impulse.

► Victims don’t ask questions, they answerquestions.

► Victims don’t read information, they rely on thesalesman to tell them what it says.

► Victims aren’t looking for why an offer is a scam;they are looking for why it will make them money.

The Cons Agree

Source: AARP Washington, Shadel


Reducing the Risk ofInvestment Fraud



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1.Reduce exposure to sales pitches

2.Look for persuasion red flags

3.Ask and check the registration status of theprofessional and the investment

Preventing Investment Fraud


a.Use care with free lunch or dinner seminars

b.Know your risk tolerance – avoid high-risk

investments

c.Develop a “refusal script”

d.Sign up for the National Do Not Call Registry

www.donotcall.gov or 888-382-1222

Reduce Exposure to Pitches



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a. Phantom Riches

b. Source Credibility

c. Social Consensus

d. Reciprocity

e. Scarcity

Look for Persuasion Red Flags


3.Ask and check the registration status of theprofessional and investment.

►ASK if they are licensed to sell the investmentand if the product is registered

►CHECK that they are licensed and the productis registered – SaveAndInvest.org or(888) 295-7422

Preventing Investment Fraud



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Before You Invest, Ask and Check

888-295-7422



Where to CheckProfessional orProduct Type

Check URL and Phone

Broker FINRA BrokerCheck www.SaveAndInvest.org(888) 295-7422

InvestmentAdviser Firm andProduct

U.S. Securities and ExchangeCommission (SEC)

www.sec.gov orwww.investor.gov(800) SEC-0330

InvestmentProfessional andProduct

State Securities Regulators – checkNorth American SecuritiesAdministrators Association (NASAA)

www.nasaa.org(202) 737-0900

Commodity,Futures, ForeignCurrency Trader

U.S. Commodity Futures TradingCommission (CFTC) and NationalFutures Association BASIC

www.cftc.govwww.nfa.futures.org

Insurance Agent State Insurance Regulators – checkNational Association of InsuranceCommissioners (NAIC)

www.naic.org(866) 470-6242




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Check ProfessionalFINRA BrokerCheck Results

888-295-7422


Professional Designations

Click to Visit theDesignations Database



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Research Investments - SEC


Click to Visit theMarket Data Center

Research Investments - FINRA



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Other Questions to Ask

1.How does the investment match my goals?

2.How does the investment risk comparewith my personal risk tolerance?

3.What are the fees and expenses? How doesthe professional make money on the sale?

4.Will the investment help me diversify?


1.Do your homework; buy what you know and whatyou understand

2. Invest for the long term

3.Diversify

4.Know your risk tolerance

5.Slow down decision-making

6.All investments have fees…and fees matter

7. Independently verify information

Key Principles of Investing



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Before You Invest,Ask and Check

SaveAndInvest.orgContact: Christine Kieffer

[email protected] or (202) 728-6970

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