June 10, 2020

Staying Ahead of the Top Investment Risks of 2020

by James MacTavish | Senior Advisor, Investor & Industry Education, Alberta Securities Commission

Investing is a great way for Albertans to achieve their financial and retirement goals, but as the saying goes: If it sounds too good to be true, it probably is.

To help Albertans invest their hard-earned money wisely, the Alberta Securities Commission (ASC) has identified the top traps to look out for in 2020 based on information gathered by its enforcement team.

You Don’t Want to Miss Out

Scam artists are always looking to capitalize on new and emerging industries, as there is often limited information and history available. This makes it easier to spread false claims or guarantees. Like any investment opportunity, it is important to understand the risks associated with new industries like cannabis, foreign exchange, and crypto-asset investments before investing.

You Can Trust Me

Affinity fraud is when scam artists work their way into groups, religious organizations, and professional communities, gaining trust before pitching fake money-making opportunities. Sometimes potential victims are approached by friends, family, or colleagues who may also have invested in the opportunity. Learn how to recognize affinity fraud and never rely solely on the trust of others to dictate what investments are right for you.

Cash Out Your Retirement Savings, You’ll Earn More

In a struggling economy, scam artists will often target those recently laid-off or retired to play on the fears and stresses around their finances. They encourage victims to cash out traditional retirement savings plans (e.g., pensions, LIRAs, RRSPs) for investments with the promise of higher returns, ignoring tax implications or added risk of the ‘recommended’ investment. Be wary of anyone offering you investment opportunities, especially those promising high returns at low risk.

Get Rich Quick!

There is a relationship between risk and reward; generally, the higher the potential reward, the higher the risk. The number of complaints relating to private, high-risk investments marketed as low-risk is on the rise. Often, salespeople will position the investment as an ‘exclusive opportunity’ or ‘how the wealthy make their money,’ which is just a high-pressure sales tactic. Take the time to invest wisely.

Registration Doesn’t Matter, I Know What I Am Doing

Generally, anyone offering investments in Alberta must be registered with the ASC, and lack of registration is a key red flag of fraud. Yet, eighty per cent of Albertans do not check the registration of their adviser. Albertans can quickly and easily verify the registration of any adviser or organization by visiting the ASC’s consumer website Checkfirst.ca.

It’s Just a Loan

Reports of investors being promised better and safer returns by loaning money through something called a ‘promissory note’ is on the rise. The fraudster claims that the promissory note is not a security, so they don’t have to be registered with the ASC. They may claim that it’s safe because it’s backed by assets like real estate. In reality, it’s a security and if you’re not on title, the loan isn’t secured — more importantly, the ‘loan’ may be just a scam.

Understanding the latest investment fraud trends and expanding your financial knowledge will put you on the right track. To build your investing savvy, visit the ASC’s consumer website Checkfirst.ca to access a wealth of free, unbiased tools and resources.