The most likely victims of investment fraud have been identified by international research. Now the Commission for Financial Capability is releasing top tactics and a video to help New Zealanders avoid becoming victims.

The Invested video was created for World Investor Week with the Financial Markets Authority. It aims to raise awareness about how to make good investment decisions, what to look out for, and what to avoid.

Research by the Financial Conduct Authority in the UK found that older, wealthier, risk-taking men are the most likely targets for “share fraud” when worthless or unsellable company shares are on offer.

Women are more affected by “recovery fraud”, when scammers offer to recover funds or a lost investment in exchange for a fee. Other scams, such as Ponzi schemes, are more likely to sting younger investors.

Other groups are not immune from fraud, either, and the Commission is highlighting defensive tactics so people can protect themselves from scams.

Education Group Manager David Boyle said: “Particularly when the investments are overseas, there is very little chance of recovering money when things go wrong. Retirees are especially at risk, after spending a lifetime building a nest egg to rely on for income, with little opportunity to recover at such a late stage in life.”

The Commission has recently added a fraud education manager to its team, tasked with leading education efforts to safeguard vulnerable New Zealanders.

The UK study demonstrated that the more financially sophisticated a person is, the more likely they are to be victimised, since fraudsters prey on investors’ overconfidence.

Fraud occurs when scammers use false information to get people to invest, and today’s scams are difficult to spot. Fake documents, companies, websites and even entire government authorities are invented to dupe investors.

In addition to the veneer of professionalism and general deception, the research describes how fraudsters groom their victims to gain their trust.

The process includes building friendship with victims, flattery, appealing to their feelings, making them feel indebted, isolating them from their social networks, and other ways of manipulating their behaviour.

This results in investors making a seemingly rational decision to part with their money. Victims said that they were more vulnerable if they were under particular stress or in difficult family circumstances at the time they were contacted.

The Commission advocates the following defensive tactics to avoid falling for scams.

  • Simply hang up. For unsolicited cold calls of investment offers, this is the most appropriate response. Aggressive sales practices are best avoided entirely, and if it sounds too good to be true, it probably is. Having a mental script at the ready, such as “This is not a good time, thank you for calling”, can help.
  • Research diligently. It’s important to note that even if a company is on the Financial Service Providers Register, this is no guarantee that they are licensed, regulated or even present here in the country. They are only registered. The Financial Markets Authority licenses and monitors providers in New Zealand, so check their lists of individuals, markets and businesses authorised to operate here.
  • Avoid unlicensed providers. Especially if they are overseas, it’s very unlikely you will be able to recover your money when things go wrong.
  • Get expert advice first. Since scammers attempt to isolate investors from their support networks, it’s important to talk about any investments you’re considering with an independent financial adviser before you part with any money.
  • Report all scams. If you think you’ve been targeted (even if you didn’t invest), make sure you notify the proper authorities for them to investigate.
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