Ever wonder how scammers do what they do? When it comes to investment scams, scammers are getting more and more sophisticated, and actually quite talented at deceiving people, resulting in more victims. FINRA Investor Education Foundation provides some interesting theories on the psychology of a scam. Here are some of the most common tactics:
The “Phantom Riches” Tactic. Dangling the prospect of wealth, enticing you with something you want but can’t have. “These gas wells are guaranteed to produce $6,800 a month in income.”
The “Source Credibility” Tactic. Trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
The “Social Consensus” Tactic. Leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m in—and so is my mom and half her church—and it’s worth every dime.”
The “Reciprocity” Tactic. Offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now—half off.”
The “Scarcity” Tactic. Creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”
Remember, never rush when making any purchasing decision.
For more tips on how to protect yourself from fraud, visit www.saveandinvest.org.