Older Canadians vulnerable to investment fraud: report

Those most vulnerable to this fraudulent offer generally tended to be on the younger end of the sample (50 to 64 years of age) and not yet retired, the report notes.

In an effort to understand why this clearly fraudulent offer appealed to the survey respondents, the most commonly cited reasons were the desire to make money (28%) and that the investment seemed worth investigating (27%). Other reasons included good rate of return, lack of risk, and recommendation by a friend.

Indeed, the survey found that 43% don’t understand the trade-off between risk and return. And, that older investors have unrealistic expectations of market returns. It found that only 25% of older Canadians have a realistic expectation of current returns, 35% have unrealistic expectations, and 40% have no idea. “Not knowing what to expect from the market makes one more vulnerable to someone who promises unrealistic returns, especially when the offer comes with the promise of low or no risk,” it notes.

And, older Canadians are most concerned about rates of return, with 21% of those that do have savings citing ‘low rates of return’ as their primary concern as an investor. Their next greatest concern was the economy (10%), capital preservation (9%), market volatility (9%), and retirement income (8%). However, it also reports that 30% of older Canadians currently have no savings set aside for the future. “This puts them most at risk of losing what little money they have to scams,” it says.

“When you combine the fact that many older Canadians don’t have a good grasp of what a realistic level of return is in the market with their lack of understanding about the relationship between risk and return, you have the perfect storm for con artists. This group is more vulnerable to promises of unrealistic returns, especially when the offer comes with the additional promise of no risk,” said BCSC chair, Brenda Leong.

The survey also reveals that more than half (53%) of older Canadians regularly involve themselves in risky sales situations, and that 17% of respondents believe they have been a victim of investment fraud at some point in their lives.

Finally, the study reveals that the fear of running out of money in retirement is a strong indicator that one could be vulnerable to a fraudulent offer. Nearly half (49%) of older Canadians say they are afraid of running out of money during their retirement. Another 42% say they find it difficult to make ends meet and this proportion is significantly higher among those who are vulnerable to fraud.

“This survey tells us that there are a number of significant factors today that make older Canadians vulnerable to investment fraud. The sheer number of Canadians approaching retirement, the current low interest rates and market returns, and the lack of understanding of the fundamental relationship between investment risk and return suggests that we, as regulators, have to be vigilant in helping to protect investors,” she said.

“What investors need to understand is that when they are tempted by products with higher than average returns, they are typically being offered high risk investments: unproven businesses that could fail or which are, in some cases, out-and-out frauds,” Leong added. “Investors also need to be vigilant.”

The national online survey of 2,461 Canadians aged 50 years and older, was conducted in English and French between January 11 and 23.