Fraud prevention is a timely topic which drew a record audience to our June educational event. For anyone who did not attend below is a summary with key takeaways.
Here is the YouTube link if you prefer to watch: Fraud Prevention - Protecting Your Wealth, Identity & Peace of Mind.
The purpose of this information is to help people stay vigilant and proactively protect them from financial fraud. It is not meant to scare anyone; in fact, it’s the opposite. This presentation is intended to inform and educate so when fraud attempts happen you have better awareness of how the scams are constructed and have a better chance of hopefully avoiding fraudulent situations.
If you know someone who needs to hear this message or would benefit, please forward this email or this link to them: Fraud Prevention - Protecting Your Wealth, Identity & Peace of Mind. It could save someone you care about time, stress, and money.
Let’s start with a definition. Financial fraud is any deceptive or illegal activity intended to deceive an individual or organization to gain a financial advantage.
Here are some recent Fraud numbers to put the scope of fraud in perspective.
- According to the Federal Trade Commission (FTC) in 2024 fraud losses totaled over $12.5 billion
- Investment scams were the single largest category of fraud totaling over $5.7 billion
- According to the Iowa Attorney General’s office in 2023 they received over 13,000 fraud reports totaling over $42 million
There is an old saying “knowledge is power.” While true, knowledge alone only goes so far. What truly makes knowledge useful, is understanding the “why.” Being able to take knowledge and apply it. Thucydides, a Greek general and historian of the Peloponnesian war understood this principle.
“Knowledge without understanding is useless” – Thucydides
Going forward we will first educate with knowledge to recognize the types of fraud and how it can occur. Then we will take the knowledge learned and look at the psychology behind fraud and why scams work. The result is taking newfound knowledge and making it useful by understanding the “why” behind fraud.
Types of Fraud Scams
Phishing – (Email / SMS / Voice) Note: SMS means text messages
- Email phishing: fake emails common business / services
- Emails attempting to fool you into clicking a fraudulent link
- Smishing: fraudulent SMS with malicious links
- Text messages with fraudulent links (Unpaid toll road is a common example)
- Vishing: impersonation calls from 'bank' or 'IRS'
- Phone calls or voicemails received attempting to initial a fraudulent conversation
Tip: Verify unexpected messages via known contacts
If you receive an email, text, or call from a business or person and things seem off. Do not respond and delete. You can always contact the business or person separately to verify if you think it could be legitimate.
Identity Theft
- Stolen personal info used to open accounts or file taxes
- This information could be found on the Dark Web from a data hack, or could be something you knowingly share yourself.
- Commonly starts from data breaches or successful phishing attempts
Tip: Use credit monitoring and freeze credit if inactive
You can freeze your credit with each of the three credit reporting agencies. It does not cost anything to freeze credit. You will need to unfreeze your credit before it can be checked for a loan as an example.
Account Takeover
- Access gained via leaked credentials or weak passwords
- This can happen within a business or personally
- Can affect banks, brokerages, retirement accounts
Tip: Use Two-Factor Authentication and strong, unique passwords
Two-Factor Authentication is the best way to prevent unwanted access to accounts or personal information. Utilize this tool whenever possible.
Investment Scams
- Fake crypto platforms or unlicensed brokers
- There is a growing list of scams utilizing cyrpto currency
- Promises of 'guaranteed' high returns
- There are no “guarantees” in investing. Any correspondence or person claiming a guarantee should be disregarded
Tip: Discuss with your financial advisor. Verify investments through FINRA or the SEC
You can check the validity of people online via the FINRA broker check website.
Romance & Relationship Scams
- Scammers build fake online relationships to gain trust
- Not only is the premise for the relationship fake, but the individual you are communicating with may not be real either.
- Widows or widowers should be especially aware of this type of scam
- Eventually request money or personal info
- There will be some unforeseen reason why money or personal information is needed by this new online acquaintance
Tip: Be very wary of online-only relationships, especially asking for money or personal information
Wire Fraud/Business Email Compromise
- Fraudsters impersonate trusted contacts to gain access to systems or reroute wire transfers
- Common in real estate and financial transactions
Tip: Avoid using wires if possible
Deepfake & AI Generated Scams (Emerging Threat)
- Synthetic voice or video to impersonate trusted individuals
- Receiving a call or social media communication from someone who is not real. They are impersonating a business or person you know or would trust
- Currently used more in corporate or high-net-worth fraud
Tip: Double-check any unusual or high-risk requests. Switch the communication method and verify through other sources.
Now that we have a better knowledge of types of fraud scams, let’s understand the “why” behind fraud scams and how they work.
Social Engineering
Social engineering is a type of deceptive attack where fraudsters manipulate individuals into divulging sensitive information or taking actions that compromise their security, often for financial gain. It relies on exploiting human psychology and trust rather than technical system vulnerabilities.
Common Themes & Red Flags
- Attackers Exploit Human Emotions
- Trust / Fear / Greed / Desire to Help / Curiosity
- Impersonate Trusted Individuals or Organizations
- Family / Friends / Business or Professional Contacts
- Immediate Deadline / Secretive / Unexpected / Humiliating
- Urgent / Don’t tell / Surprised / Embarrassing
- Email Links / Text Links / Requesting SSN or PIN
Common themes will use 1 or more of each of these categories. There will be a strong emotional pull (fear), then a trusted contact (family member or government organization), then an immediate deadline, and finally a link or communication to act based on the fraud “story.”
Why do Scams Succeed – Understanding Human Psychology
- Scams catch you when Vulnerable
- Not present in moment - End of Day / Busy Multitasking
- When our guard is down and we are not present so a story with social engineering may seem plausible on the surface.
- Human nature is to believe what people tell us
- Truth Bias – Our brains are primed to believe something is true before considering it’s false.
- Scammers use Authority to convince
- Sheriff / President of organization / Compliance / Gov’t Organizations (FBI)
- Take advantage of Human Tendencies
- Humans don’t want to expend mental energy all the time and may take something at face value which is not true
- People don’t want to be considered “rude” or “uncooperative”
Common Current Fraud Schemes
- Unpaid Toll Scam
- Grandkid or family member in trouble with the law
- Credit card declined scam
- Computer tech support scam
- Prize won (Publisher’s Clearing House scams)
- Cryptocurrency scam – (False guarantee’s / Romance scams)
- Spouse’s hacked email used to request account withdrawals or takeover
- Employment scams (Fraudulent job posting which people apply to and share personal information)
How to Protect Yourself
- Never provide sensitive information over phone / email / text
- Listen to your instincts – if something feels off or doesn’t add up STOP – assess the situation and ask someone not involved for their opinion
- Being Present
- Change Communication Mode - Pick up phone / Discuss in person / Verify with a 3rd party
- If an email or text seems off. Call the business or visit the business in person to verify.
- Bring a 3rd party into conversation
- If someone purporting to be a law officer is calling you, put them on hold and call the local police station or appropriate agency yourself
- Have a family/friend “code word”
- Have a word only your family know which can be used in emergency situations to verify it’s truly them
- 2 Factor Authentication / Strong passwords
- Keep computer and phone security updates current
- Avoid Public Wi-Fi
- Credit report checks and Credit freezes
What Compass is doing to Protect You
- We get to know you and ask questions (Know your client)
- In our industry there is a phrase called “know your client” or “KYC” for short. This means we ask questions and stay up to date on what’s happening in your life financially and personally, to the degree clients are willing to share. This helps us to recognize when something seems off if we receive an unexpected request for money, or there are financial decisions being made which seem out of character.
- Verbally confirm all monetary transactions and trades
- We don’t execute trade orders or money requests over email. If we receive an email from a client email address with a request, we will follow up with a call and wait to proceed until we have verbal confirmation from the client.
- Reconfirm, if necessary, through different communication modes
- If something seems off, we will contact a client through multiple types of communication (phone, email, etc.) to verify we are talking to the client and not a scammer
- Overcommunicate
- As simple as it sounds, we want to “overcommunicate” with our clients. Meaning ask more questions and be sure to fully understand and communicate clearly with clients.
- Utilize Trusted Contacts, 3rd party disclosure forms when appropriate
- It gives us the ability to contact a 3rd party to ask any questions we may have regarding a client. We do not share information with the 3rd party but we can ask questions
- Ongoing Fraud training and continuing education requirements
- Regular compliance checks
- Regular technology checks
- System checks from a 3rd party
- Background checks and due diligence on 3rd party vendors (software)
- Redundant systems where appropriate
Hopefully you found this information useful and have learned something you can take and utilize going forward. Being proactive when it comes to fraud and understanding the “why” behind the scams is another way to protect your wealth, identity, and peace of mind in today’s world. I hope this information was informative, and you feel more confident going forward after watching the video or reading this. Thank you for your business and trust in Compass Financial Services. Have a wonderful Summer!