Investors work hard to save and invest their money. They choose to buy less now – waiting for that new sofa, kitchen renovation or trip of a lifetime – so they can set aside more for retirement and other important goals. The sacrifice and strong commitment toward long-term financial goals makes it even more important to understand how to protect investment accounts from fraud.
Fraud is designed to encourage investors to make decisions based on false information, and it can lead to significant financial losses. In 2020, reported fraud of all types cost Canadians $104.2 million.1 Importantly, it can unravel investors’ well-intentioned efforts to secure their future. Understanding some of the more common pitfalls can help to keep hard-earned money safe.
1. Be wary of unsolicited offers
Be suspicious of any investment that promises low risk and high returns, perhaps even with a guarantee – they don’t go together. In general, low-risk investments generate lower returns, and higher returns are only possible by taking on more risk. Also, beware of schemes that suggest it’s possible to make a tax-free withdrawal from a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF). Under Canada’s tax system, withdrawals from an RRSP or RRIF are taxable unless they are part of a government-sanctioned strategy such as the Home Buyers’ Plan or Lifelong Learning Plan. In addition, question information that is “confidential” and “for your eyes only,” keeping in mind that this means you can’t double-check that it’s accurate – and also that trading based on inside information is illegal.
2. Know the scams can come by way of trusted sources
Sometimes a deceptive offer will come in a phone call, email or letter from a stranger; these are easy to ignore. But other times it will come from a family member, friend or acquaintance, or through a trusted religious group, community or social club. It can be harder to say “no” to someone you know, whether it’s an individual or an organization, and that’s why these fraud schemes work. Don’t invest if you have any doubts at all, no matter who the messenger is. Another important safeguard: whenever you write a cheque to add to your investment account, always make it out to the investment firm and not to an individual who works there.
3. Don’t rush into an investment decision
Pressure to invest in a hurry can be a warning sign of fraud. Avoid the temptation of a “now or never” opportunity and take the time to fully understand an investment before putting any money into it. That can include accessing financial documents such as the investment’s prospectus and financial statements at www.sedar.com and checking for investor alerts at www.securities-administrators.ca. Don’t take someone’s word for it – do some of your own digging to learn more about the opportunity.
4. Make sure the paperwork is accurate
Never sign a financial or legal document without first reading it thoroughly. Be especially careful with wills and powers of attorney, which can be powerful ways to perpetrate fraud. And always tell the truth on a financial or legal document. One common scam encourages people to invest in exempt securities, sold without a prospectus to qualified investors with a minimum level of income. Lying about income takes away the protection provided by exempt securities rules and may expose you to more risk than you can afford.
5. Keep tabs on your investments
Account statements provide a wealth of information, but too often end up filed away, unopened and unread. It’s important to carefully check your account statements. You can keep tabs on the overall balance to make sure it’s in line with your expectations, and review the asset allocation to ensure it matches your risk tolerance and time horizon. You can also scan the individual assets within your portfolio to ensure you recognize them. If you see a withdrawal you don’t remember authorizing or anything else you didn’t expect, you have a right to question it with the advisor and the investment firm. Spotting inconsistencies early is the best way to protect your investments.
6. Have confidence in your advisor
Building a strong relationship with your advisor can offer protection from fraud when you’re working with a trained, accredited professional to consult on new investment ideas. Investors can check to ensure a new advisor is registered with the appropriate provincial or territorial securities regulator and has not been subject to any disciplinary actions.
Staying alert to the potential for fraud, following these best practices and remaining committed to a well-thought-out investment plan can help you avoid fraudulent offers. That, in turn, will help keep safe the money you’ve saved over the years to achieve your long-term goals.
7. Protect your financial information
Store financial documents in a safe place at home, out of sight, and when you’re ready to throw old statements away shred them so no one can read your personal and account information. Protect data on your computer and mobile devices with strong passwords and anti-virus software. Be suspicious of messages that may be “phishing” for your personal information and don’t click links that you aren’t absolutely certain are legitimate. Also be very careful about sharing key pieces of personal information such as your social insurance number (SIN) either in person or online; SINs can be used to perpetrate fraud and identity theft.2 A good rule to follow is to think twice anytime anyone asks you for personal information – and remember that once data is on the Internet, it’s out there forever.
Learn more about fraud
At Manulife Securities, we take fraud very seriously. We are committed to protecting the financial assets of our clients. Knowledge is one of the best defences against fraud. You can learn more about fraud types from these resources:
Manulife Fraud Prevention Centre
IFIC Investor Centre
Canadian Anti-Fraud Centre
Protection from frauds and scams
Scams and fraud
Ombudsman for Banking Services and Investments (OBSI) (search for “fraud”)
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Please note that only advisors who are qualified and approved financial planners can provide financial planning advise. Please check with your advisor.