Serving America's seniors gives advisors a special responsibility—to help them not only achieve their financial objectives, but also to be alert to the possibility that scammers are stealing their money. This is especially true when it comes to guarding against affinity fraud, which involves fraud perpetrated against members of religious or social groups, which often contain high numbers of seniors. To this end, the Securities and Exchange Commission (SEC) has issued a new Investor Alert that zeroes in on preventing affinity fraud.
"Fraudsters who carry out affinity scams frequently are (or pretend to be) members of the group they are trying to defraud," notes the SEC. "The group could be a religious group, such as a particular denomination or church. It could be an ethnic group or an immigrant community. It could be a racial minority. It could be members of a particular workforce – even members of the military have been targets of these frauds. Fraudsters target any group they think they can convince to trust them with the group members' hard-earned savings."
According to the SEC, affinity fraud typically involves either a phony investment or one that promotes false information (risk of loss, historical returns, or identity or track record of the investment promoter). Many affinity frauds are Ponzi or pyramid schemes, as well. Because the social bonds between group members are often strong, scammers use an initial sale to win the trust of the victim's friends.
So how can you protect your clients against affinity fraud? By sharing the following tips with them, either during update meetings or on your website or blog.
• Even if you know the person making the investment offer, be sure to research the person's background, as well as the investment itself—no matter how trustworthy the person who brings the investment opportunity to your attention seems to be. Be aware that the person telling you about the investment may have been fooled into believing that the investment is legitimate when it is not.
