Investment Frauds Use Psychology to Scam
July 17, 2012

Investors, be wary: Don’t put stock in brokers and agents with too-good-to-be-true promises, advises Better Business Bureau. The Financial Industry Regulatory Authority—FINRA—shares the common psychological tactics used by investment frauds:

The "Phantom Riches" Tactic: Sellers dangle the prospect of wealth and high-returns. "These gas wells are guaranteed to produce $6,800 a month in income."

The "Source Credibility" Tactic: Solicitors claim to have clout or special credentials at reputable firms. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."

The "Social Consensus" Tactic: Brokers use names of savvy investors and other sources to insinuate that "everyone" is investing. "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: Agents offer small favors in return for big favors. "I'll give you a break on my commission if you buy now—half off."

The "Scarcity" Tactic: Advisers spread rumors of false urgency and limited supply. "There are only two units left, so I'd sign today if I were you."

BBB serving Northern Indiana: "Investigate before investing."

Before working with brokers or other financial salespeople, ensure that they are licensed to sell investments; check registration with FINRA, the U.S. Securities and Exchange Commission—SEC—and the Oregon Division of Finance and Corporate Securities—DFCS. Report any problems if they arise.

For more smart investing tips, rely on BBB at BBB.org the SEC at investor.gov, and the FINRA Investor Education Foundation at finrafoundation.org or saveandinvest.org.