Investor Protection Campaign Research

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The FINRA Foundation undertakes periodic research to better understand financial fraud, including an investor’s susceptibility to fraud, the impact of fraud and more. 

The Foundation also joined with Stanford University’s Center on Longevity to launch the Financial Fraud Research Center to consolidate scientific research and connect it to practical prevention and detection efforts.


Exposed to Scams: What Separates Victims from Non-Victims?

To better understand the fraud victimization process and craft better interventions to reduce fraud, the FINRA Foundation collaborated with the BBB Institute for Marketplace Trust, Stanford Center on Longevity and Federal Trade Commission to explore the cognitive, behavioral and attitudinal differences between victims and non-victims. In this survey of 1,408 who were targeted and reported a scam, thirty percent engaged but did not lose money, yet 23 percent engaged and ultimately lost money. The type of scam and the method by which the respondents were exposed to the offer were highly associated with engaging and losing money. This research also found that prior knowledge of scams and fraud can reduce susceptibility. Read the report and resulting implications for protecting consumers from scams and fraud.

Understanding and Combating Investment Fraud

This working paper, authored by FINRA Foundation staff, is part of a collection of research titled “Financial Decision Making and Retirement Security in an Aging World,” prepared by Wharton’s Pension Research Council and published by Oxford University Press in October 2017. The FINRA Foundation’s chapter reviews the dynamics of investment fraud victimization, explains how fraudsters use social influence tactics to defraud their victims and describes current investor protection efforts. Download the working paper from the Pension Research Council.

The State of Financial Fraud in America, Post-Conference Report

The FINRA Foundation joined together with the Stanford Center on Longevity in November 2016 to host The State of Financial Fraud in America, our second financial fraud research conference that brought together academics who conduct research on financial fraud and the regulators, law enforcement agencies and advocacy groups that apply these findings to their work on the front lines. Our objective was to showcase innovative tools to protect consumers from financial fraud, and to share new findings on the scope of the problem and the characteristics and behaviors that increase fraud susceptibility. Read the post-conference report.

Findings from a Pilot Study to Measure Financial Fraud in the United States

Consumer financial fraud is a serious problem in our society. While researchers estimate that billions of dollars are lost to scams each year, measuring the true prevalence rate and costs of financial fraud has been hindered by a number of challenges. Therefore, the FINRA Investor Education Foundation and the Stanford Center on Longevity—working in collaboration with the U.S. Department of Justice—embarked on a project to create, test and refine a survey instrument to measure the scope of the problem. This study reports the results of the pilot test for this new survey instrument.

Heightened Emotional States Increase Susceptibility to Fraud in Older Adults

Financial fraudsters often attempt to evoke strong emotions in their victims to convince them to hand over money, and seniors may be particularly vulnerable to the effects of heightened emotions on decision making. With funding and research participation from AARP and the FINRA Foundation, psychologists at Stanford University found that inducing emotions in older adults—whether positive (excitement) or negative (anger)—increased their intention to buy falsely advertised items, compared to young adults. Further, older adults’ intention to purchase was not based on perceived credibility, but rather on the emotional states they were experiencing. The issue brief was published by the Stanford Center on Longevity.

Non-Traditional Costs of Financial Fraud

The FINRA Investor Education Foundation’s new research report, Non-Traditional Costs of Financial Fraud, examined the broader impact of financial fraud and found that nearly two thirds of self-reported financial fraud victims experienced at least one non-financial cost of fraud to a serious degree—including severe stress, anxiety, difficulty sleeping and depression. Beyond psychological and emotional costs, nearly half of fraud victims reported incurring indirect financial costs associated with the fraud, such as late fees, legal fees and bounced checks. Twenty-nine percent of respondents reported incurring more than $1,000 in indirect costs, and 9 percent declared bankruptcy as a result of the fraud. An interesting insight from this research is that nearly half of victims blame themselves for the fraud—an indication of the far-reaching effects of financial fraud on the lives of its victims.

The Impact of Survey Context on Self-Reported Rates of Fraud Victimization

This study by the Financial Fraud Research Center at the Stanford Center on Longevity is designed to test if the "context"—defined as the survey title, stated purpose, and a set of prior questions—of a survey has an effect on whether respondents admit to being victims of fraud. A survey about fraud victimization was modified to represent three distinct contexts: embodied within a survey about a crime; embodied within a survey about consumer purchasing experiences; and a stand-alone "neutral" survey limited to the questions about fraud, which served as the control context. Results show that respondents that answered the fraud questions embodied in the crime context were less-likely to report being victims of fraud. This inhibitory effect was particularly strong for individuals under the age of 35, over the age of 65, and for those with high self-perceived social status. The effect was opposite for black respondents, however, with this population increasing their reporting of fraud when exposed to the crime context. Fraud reporting for those exposed to the consumer purchasing context did not differ from the control group.

Individual Differences in Susceptibility to Investment Fraud

In this study, Individual Differences in Susceptibility to Investment Fraud, researchers from Stanford and Yale used multilevel data (e.g., fMRI, survey, demographic) to examine three hypotheses: 1) whether investment fraud victims exhibit more cognitive limitations than non-victims; 2) whether investment fraud victims prefer more financial risk than non-victims; and 3) whether investment fraud victims have less behavioral control in high-stakes scenarios than non-victims. Counter to expectations, the study did not find support for the first two hypotheses, suggesting that susceptibility to investment fraud might not be driven by cognitive decline or an appetite for financial risk-taking. However, victims did report higher impulsiveness and demonstrated less cognitive flexibility, which supported the third hypothesis.

Financial Fraud Study

It's estimated that consumer financial fraud cost Americans over $50 billion a year, and this number doesn't include the money used for its prevention or the social and emotional cost fraud imposes on Americans every year. The FINRA Investor Education Foundation's 2013 research report,Financial Fraud And Fraud Susceptibility In The United States, contributes to a deeper understanding of financial fraud by gauging exposure and response to traditional and Internet-based scams, and the relationships between susceptibility to fraud and various demographics.

Key findings:
  • The ubiquity of fraud solicitations coupled with the inability of many people to recognize the red flags of fraud place a large number of Americans at risk of losing money to scams.
  • Americans 65 and older are more likely to be targeted by fraudsters and more likely to lose money once targeted.
  • The inability of researchers and policy makers to get an accurate measure of financial fraud constrains our understanding of the problem.

Fraud Risk Survey

In 2007, the FINRA Foundation Senior Fraud Risk Survey age 55 – 64 about behaviors that may put them at a higher risk of becoming a victim of investment fraud. Key findings:

  • 80 percent have not checked whether a broker ever violated any laws, and 70 percent didn't check their registration.
  • Approximately 65 percent didn't check to see if the investment was registered with the SEC or appropriate regulatory body.
  • Three times (21 percent) as many known investment fraud victims have attended a free lunch investment seminar as a national sample of investors (7 percent).
  • 92 percent felt "somewhat" or "very" confident about managing their finances, and almost 80 percent described themselves as "somewhat" or "very" knowledgeable about investing.
  • But fewer than half—only 44 percent—got a passing grade on a basic financial literacy knowledge test. The older the investor, the less likely he or she is to want to learn more.

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