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Tips to Help Self-Directed Investors Avoid Investment Fraud

FRAUD written on dice

  |  By Mary Mohr

One of our chief initiatives at the Retirement Industry Trust Association (RITA) is curtailing the spread of investment fraud. According to Financial Industry Regulatory Authority (FINRA), fraudsters are especially attracted to people who are college-educated, optimistic and self-reliant. While we would like to protect everyone from fraud, it is seniors — especially those who have built up “nest eggs” — who are particularly popular targets for fraud and deception.

definition of Investment Fraud

What makes seniors so vulnerable? Ponzi schemes find wealthy older Americans with IRAs to be the perfect storm. Not only have seniors accumulated wealth over a lifetime, but they also can be lonely and take phone calls from strangers at home. They are susceptible to “get-rich-quick” pitches when money is tight, and they tend to be polite and not hang up the phone.

Definition of Ponzi Scheme

So, what are some steps investors can take to help mitigate fraud?

Particular attention should be paid when any solicitations involve investment pitches. Regulators are making significant steps to crack down on perpetrators but investors — all investors — must also take precautionary steps.

  1. Always conduct research to determine if the investment salespersons are properly licensed, educated and associated with reputable firms. If you’re working with a financial adviser, they should be listed in FINRA’s Broker Check where you can research any financial adviser and firm.
  2. Make sure you understand the investment before you invest money. Be sure your IRA investment is consistent with your investment goals. Be especially wary of anyone promising guaranteed results.
  3. Take your time to make decisions. To entice you to invest, fraudsters use high pressure. Be sure to talk over financial decisions with a trusted professional, family member, or friend.
  4. Understand that your IRA custodian never endorses or guarantees non-FDIC insured investments. (Any investment outside of an FDIC-insured product is subject to risk including loss of principal.)

The Retirement Industry Trust Association works in conjunction with various government agencies to research and report any fraudulent practices imposed on seniors and retirees. As an organization, RITA is building coalitions to work with the Association of Retired Persons and the Better Business Bureau (BBB) in order to curtail the spread of senior fraud.

Fraudster “Tricks of the Trade”

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 "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."
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."


According to a Federal Trade Commission survey, there are more than 40 million victims of fraud in the United States each year. I hope by sharing these tips, we can help to abate this problem.

For additional information, check out RITA’s Check Before you Invest publication.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

Pacific Premier Trust (formerly PENSCO Trust Company) performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Pacific Premier Trust is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.