With research showing that more than a million Canadians have lost money in an investment fraud, the Canadian Securities Administrators is offering tips for investors to protect themselves, including the ways advisors can help.

The 2009 CSA Investor Index, which involved surveys of more than 7,000 adults, found that almost four in 10 Canadians have been approached with an investment fraud, most of them multiple times.

While Canadians feel confident and believe they are knowledgeable and responsible when it comes to investing, they are not taking the appropriate steps to put their knowledge into practice, according to the surveys.

For instance, a majority of Canadians are not accessing information about investments, even though they believe that they would know where to go for this information.

Most Canadians recognize various “flags” that indicate potential fraudulent investments, the Investor Index found. These include situations where there is no written information on the investment or a reluctance to provide it, a strong push to act now, a guarantee of high returns with little or no risk, and claims of access to insider information.

Yet, the surveys showed that Canadians were more likely in 2009 than in 2006 to trust fraud artists. More than one in 10 respondents who were approached by a fraud artist said they developed a very strong or somewhat strong level of trust.

The results also show an increase in the incidence of fraud victims who say they have invested in fraudulent investments more than once, and the amount invested has also increased.

With Fraud Prevention Month kicking off on Monday, the CSA is urging investors to move beyond simply knowing what they should do about potential investment fraud and take the next step to protect themselves and their financial future.

“We are encouraged to see that the majority of Canadians are knowledgeable about what they should do when it comes to investing and investment fraud,” says Jean St-Gelais, chair of the CSA and president and CEO of the Autorité des marchés financiers (Québec). “Unfortunately, many do not act on this knowledge, or their actions contradict their knowledge of investing and fraud prevention.

“Investors need to be aware that not every investment opportunity is right for them and that some ‘opportunities’ may not be appropriate for them, or may even be a scam,” says St-Gelais.

How advisors can help protect clients

Financial advisors can help investors protect themselves from investment fraud, according to the CSA. It urges advisors to help clients determine their risk tolerance, and to review it at least once a year. Knowing their risk tolerance will help clients when deciding if an investment fits their goals and objectives, the CSA says.

Advisors should also familiarize themselves, and their clients, with common red flags of investment scams. The CSA directs investors and advisors to its website for common signs to look for in investment frauds such as affinity fraud and boiler room scams.

The CSA also urges advisors to thoroughly research each investment opportunity and conduct a background check on the person and company offering any investment – and encourage clients to do the same. This is particularly important for clients who may engage in some of their own self-directed investing.

Lastly, the CSA urges advisors and investors to report any suspicion of investment fraud to their local securities regulator. The Investor Index surveys found that although 78% believe it’s important to report even the suspicion of an investment fraud, only 26% take that step.

IE