How to Protect Your Retirement Investments from Scams

[See 4 Ways to Avoid Financial Scams.]

Fraud warning signs. Gerri Walsh, vice president of investor education at the Financial Industry Regulatory Authority (FINRA), says a scammer's primary way of targeting a victim is through persuasion. To gain trust through persuasion, he or she uses five primary methods:

Promises of phantom riches. "They dangle something that you want but can't have—guaranteed returns and promises of untold riches," Walsh says.

Source credibility. "This is the idea that we all want to work with the person who is the expert. We seek out the person who is knowledgeable," according to Walsh. "A con man looks the part of the authoritative figure, but authority can be faked. Diplomas you claim to have, accolades you have gained—it can all be made up."

Social consensus. "Everybody is doing it, and you don't want to be the one that's left off the bus. You want to be with the 'in' crowd," she says.

Reciprocity. "The idea behind this is the concept of 'I do something nice for you, you do something nice for me,'" Walsh says. "There's been a lot of research that's been done that shows when you give someone something, that person is more likely to give back to you."

Scarcity. "It's used to create a false sense of urgency—something is time-limited. They might say it's quantity-limited. They also might claim something is exclusive," Walsh says. "This is the idea that this opportunity is only available to a select group of investors, and you are one of them."

According to Walsh, the best scammers will use these tactics on a mark without the mark realizing that he or she is being targeted.

How to fight back. Walsh says the best weapon against cons is simple: Ask a lot of questions.

"The process is designed to weigh you down so that you're in an ether and not making a rational decision—you're making an emotional one," she says. "The best way to avoid this situation is to ask questions. If you make the con's work difficult, they'll back away."

"You've got to do your own independent research," adds AARP's Hurme. "You have to verify the info and not let the glitter and glamour of a brochure that is not a regular prospectus get in the way of prudent caution."

Twitter: @davidcfrancis

Reader Comments Read all comments (1)

Add Your Thoughts

Comment Name State Select One AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY International Email

Please enter the two words below into the text field underneath the image.

Incorrect please try again

Enter the words above: Enter the numbers you hear:

Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our Comments FAQ.