It's easy for people to fall into the trap of a financial fraudster, but advisors can educate their clients on how to avoid becoming a victim, according to a new report.

The report, conducted by researchers at The American College of Financial Services in Bryn Mawr, Pa., and Swathmore College in Swathmore, Pa., aims to educate those in the financial services space on how to spot the warning signs of swindlers in action. 

The report noted that the Securities and Exchange Commission in 2017 ordered more than $2.9 billion in disgorgement from ill-gotten gains and imposed $832 million in civil penalties against individuals and companies that violated securities laws and defrauded investors.

Most vulnerable are those in their 50s and 60s, or people just entering retirement, the report said. The report also said single individuals, including divorcees and widowed spouses, are more likely to report being victims of fraud, possibly because of a lack of immediate family support.

Those who spend responsibly, meaning those who are who are more willing to spend their wealth over their entire lives instead of on short-term needs, are less likely to report being defrauded, the report noted. One possible reason is that those respondents saved adequately for retirement and are therefore less pressured to “catch up” by placing their money in questionable investments, the report said.

These, according to the report, are the tactics con artists use to gain the trust and resources of their victims:

• Perceived success: The “confidence man,” the report said, often perpetuates an aura of success through false account statements, as well as a fabricated prospectus. Falsified account statements are also used to attract new prospects to the schemes, the report said.

• Air of familiarity: Scammers will target religious communities, touting themes of trust and faith to gain people's trust. The report said projecting an air of familiarity to appear as a member of a prospect’s “in-group is one of the most powerful strategies fraudsters use to evade due diligence. 

• Claim to authority: The report likened this to Bernard Madoff, who ran the largest Ponzi scheme in history. Madoff, the report said, cited clearance from the SEC and was able to scam billions of dollars out of people as a result. When their legitimacy is challenged, scammers will cite an authority, falsely claiming that  they have been "cleared" or "checked out" by a government agency or other entity. 

• Noble pursuits: Swindlers will sometimes use a charitable goal as a cover to raise money from their fraud victims. The report said clients need to fact-check to make sure their money is going where it’s intended.

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