Authors: Financial Industry Regulatory Authority Investor Education Foundation, and Applied Research & Consulting LLC
Year: 2007
Focus Area: Profile, Prevention, Impact, Related Surveys, Financial Literacy
Relevance: Comparing the profiles of known victims to a non-victim sample is a valuable means of identifying characteristics that make some people more vulnerable than others, as well as beginning to estimate the rate of under-reporting.
Summary: By comparing a national survey sample with known investment fraud victims, this study highlights a number of key fraud risk factors.
National sample: 371 Americans age 55-64 with known securities investments.
Victim sample: 101 known investment fraud victims, age 25-85, with net household investments ranging from less than $2,000 to more than $750,000.
Some important differences between these two groups emerged:
- Victims were significantly more likely to own or have owned risky investments than the National sample (73% vs. 52%). Victims also said they preferred riskier investments more often (25%) than the National sample (13%).
- Victims were more likely (60%) to choose a broker based on the advice of a relative, friend, neighbor, or co-worker than was the National sample (40%).
- Three times (21%) as many victims in the 55-65 age category went to a free lunch seminar than did the National sample respondents (7%, similar age category).
Additionally, though all of the known victims were victimized, only 88% admitted to having lost money in an investment, and only 50% admitted losing money due to being misled or defrauded. Of those who admitted being defrauded, 82% were introduced to the broker or firm through a friend or family member, 52% of these introductions being in-person. For all respondents in general:
- Only 32% of all respondents knew that no organization insures investors against stock market losses.
- 75% believed that they have an above average ability to resist high-pressure sales tactics.
- About 80% failed to check their broker for previous law violations, and 70% didn’t check their registration (two easy ways of avoiding investment fraud).
Author Abstract: In August 2007, the FINRA Investor Education Foundation contracted Applied Research & Consulting LLC for an investment fraud risk survey of investors ages 55-64. The survey was intended to benchmark the behavioral norms of the target audience with regard to risk and openness to investment pitches.
