• John J. Diak, CFP®

Common Financial Scams and How to Avoid Them


Anyone can fall prey to financial fraud at any time. No matter how careful you are, criminals are working around the clock to find and create new ways to steal money from honest, hard-working people.


From data breaches and online scams to shady swindles and illegal schemes, fraudsters target unsuspecting victims and deceive even the most vigilant skeptic. As technology becomes increasingly integral to the way we connect, do business, and manage our finances, scammers are becoming more sophisticated every day. While some forms of fraud might be outside of your control, you can take protective steps to limit your vulnerability to common financial scams.


Phishing


Phishing (pronounced like “fishing”) is a fraudulent attempt to get sensitive data, such as credit card or bank account information, usernames and passwords, or other private details by posing as a trustworthy entity. A common tactic used by scammers is to send an official-looking email that appears to come from a financial institution or a company you do business with, asking you to update your account information.


If you receive an email or message via social media asking you for sensitive information, do not click on the link or provide your account details, no matter how legitimate it appears. Instead, reach out to the company directly using their official contact information to verify the request.


IRS Scams


Many taxpayers have reported receiving a phone call from someone impersonating an IRS agent, demanding money for overdue taxes, and threatening consequences. They may claim that they will garnish your paycheck, seize your bank accounts, revoke your driver’s license, or even arrest you if you do not comply. Unwitting victims are pressured into sending large amounts of money before hanging up the phone out of fear.


The truth is, most official correspondence from the IRS is done through the U.S. mail. They will not call to demand immediate payment without the opportunity to question or appeal to what you owe. They also will not demand a specific payment under threat before ending your call, and they do not involve law enforcement.


If you do have unpaid taxes, contact the IRS directly to arrange for payment. If you discover that someone has attempted to scam you, contact the Treasury Inspector General for Tax Administration.


Fake Job Scams


Scammers take advantage of job hunters by creating fake companies, posting job openings, and contacting people through online job boards. They often target younger, less experienced applicants and expedite the interview and hiring process, sometimes conducting only a phone interview or a quick in-person interview in a nondescript office.


The unsuspecting new hire then provides the person who offered them a job with sensitive personal information, which is then used to commit identity fraud. Another common scam is that the new fake employer will ask the victim to pay upfront for training or equipment. They may also send the new hire a phony check to pay for equipment, and then ask the victim to deposit it into their account and return a portion of the money.


If you are on the job market, always do your due diligence and be wary of offers that seem too good to be true or too easy to get. Make sure the company that contacts you is legitimate and that the person who contacts you is an employee of that company. Cross-reference their phone number and email address with the company’s official contact information, and be on the lookout for red flags.


Family or Friend Emergency Scams


Another tactic scammers use is to make victims believe their loved one is in trouble and needs money, often targeting grandparents or other older family members. You may see a post on social media, receive an email, direct message, text, or phone call notifying you that a friend or family member is stranded somewhere without their phone or wallet, that their purse was stolen, or that they were arrested and need to be bailed out of jail.


The best way to avoid this scam is to be aware that it happens and use your discernment. If you get a message or call from someone who seems to be or sounds like a grandchild, relative, or friend asking you to wire or send money or gift cards to help them out of trouble, keep in mind that it could be a scam. Take precautions to verify that the request is legitimate and never provide any of your sensitive information.


Debtor Scams


It is not uncommon for legitimate debt collectors to contact you to collect on the debts you actually owe. However, you may also encounter scammers posing as a debt collector to get your personal information or to request payment for debts you don’t actually owe.


It could be a fake medical bill, since scammers are aware that people often receive and pay unexpected medical bills, or a student loan bill because they know borrowers often receive confusing communications from servicers. It might even resemble a bill for an actual payment you owe or one you’ve already paid. The scammer may also pose as a debt settlement company claiming to be able to settle or renegotiate your debt in some way.


To avoid falling victim to this kind of fraud, always verify the debt and the debt collection company information before providing personal financial information. Send a letter to the company to request official verification.


Charity Scams


It’s common for swindlers to take advantage of people’s generosity and affinity for helping causes near and dear to their hearts to get them to open their wallets. Unscrupulous tricksters set up fake non-profit organizations, running fundraising scams by phone, mail, or other means, sometimes defrauding victims for years while lining their own pockets.


It is especially common to see these kinds of scams pop up and take advantage of the public during natural disasters or tragedies while emotions are raw and sympathetic people are looking for ways to help.


Before donating funds to a charity, do your research and confirm that they are a legitimate, registered non-profit with a solid reputation. You can check with organizations such as GuideStar, CharityWatch, or CharityNavigator to find background and financial information about the charity.


Prize Scams


A popular hustle for scammers is to notify you that you’ve won a prize, such as a lottery, sweepstakes, or contest, stating that you need to provide personal information or pay a fee to collect your winnings. Alternatively, the scam may ask you for personal information or to pay an entry fee. They also commonly pressure you to act quickly or risk missing out on your prize.


Always be wary of unsolicited mailings, messages, and notifications. Conduct research on the company and the sweepstakes or contest. Don’t pay any fees to collect winnings. And never provide sensitive information.


Investment Scams


Con artists often prey on people by promising wildly unrealistic returns on an investment. Common investment scams include pyramid or Ponzi schemes that entice victims with inflated earning potential by recruiting and signing up more participants. In cases like this, the scammers use money from new recruits to keep the scheme going. Other examples of investment scams include using high-pressure sales tactics to pitch real estate or other high-dollar unsubstantiated investment opportunities.


As a general rule of thumb, when it comes to investing, if it sounds too good to be true, it probably is. If it asks you to risk more money than you can comfortably afford, it’s probably not a smart move.


Ask questions, get everything in writing, don’t make any rash decisions in the heat of the moment, and turn over every rock to research the opportunity itself and the investment professional that’s offering it. Check with the state securities regulator and the Financial Industry Regulatory Authority.


The Final Word


Unfortunately, financial scams are rampant, and they are growing even more prevalent. This kind of crime causes a great deal of harm, but it is difficult to stop because thieves operate stealthily and have a never-ending pool of new potential victims. Many people fail to come forward and report crimes because they are embarrassed or don’t know where to turn.


Your best defense against financial fraud is a good offense. Keep your usernames, passwords, and account data closely guarded. Be wary of all requests for sensitive and personal information. Be on the lookout for red flags, trust your gut if something seems off, and do as much research and due diligence as possible. Remember, some forms of fraud might be outside of your control, but you can limit your exposure to common financial scams if you are careful.



John J. Diak, CFP® is the Principal & Client Wealth Manager at Oatley & Diak, LLC in Parker, Colorado. He assists clients through many difficult lifestyle changes such as business downturns, retirement planning, divorce, the death of a spouse, and family estate issues among others. Oatley & Diak, LLC is a family-run registered investment advisory (RIA) firm that provides clients with investment management and financial planning services in a hands-on, intimate environment. Learn more about them at oatleydiak.com.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.


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