When I used to work for a life insurance company, I used to feel like a scammer. I used to sell mutual funds with expense ratios of over 3% when I knew that there were similar mutual funds with expense ratios of less than 0.5%. I never felt that I was offering my clients the best product for their money.
Also, my boss would encourage me to push my clients into buying more insurance than they needed.
But my situation was not unique. The same scenario is practiced every day at most banks and life insurance institutions. They call it “Free financial advice.” The consumer is unaware that we are not financial advisers, we are financial product salespersons. The client has nothing to pay out of their pocket. Many of the clients are unaware that through undisclosed commissions they are paying an exorbitant price for the products they are buying.
Although the above mentioned practices are totally legal, once the cloak is taken off, it does have the appearances of a scam.
Here are some practices which are illegal scams and some practices which are completely legal but have the flavor of a scam.
1. The obvious: If you open your spam folder you will find them right away. The most obvious is the email about the Nigerian prince who will split his inheritance with you if you help him pay some government fees. Believe it or not, people fall for this kind of scam. That’s why you continue seeing them.
2. Phishing: This form of scamming is extremely sophisticated. The scammers try to make you believe that you are getting a message from your bank, the government, paypal, or any other legitimate organization, and they ask you to confirm your password. If you comply with their request, they can get access to your account or identity, and they can easily steal money from you.
3. Insurance Companies: When an insurance salesperson persuades you to buy life insurance when you have no dependents, I consider this a scam.
4. Mutual fund salespeople: Most the of mutual fund salespeople who claim to be “YOUR” adviser, hide or downplay critical information about competitive products which offer similar returns at a much lower expense ratio.
5. Bank tellers: Many bank tellers try to up-sell you on a higher fee credit card which you don’t need. If they succeed, they’ll get a nice sales commission.
6. Retail stores bait and switch technique: Retail stores advertise amazing deals to get you to go to the store, but when you get to the store, the product which they advertised just ran out and they try to sell you a different product with a higher profit margin.
7. The donation scam: As soon as there is a natural catastrophe somewhere in the world, we start to see non profit organizations collecting money for the needy. Some of these institutions are 100% scams.
8. Charity institutions: Some charity institutions are completely legal but when 95% of the donation money goes towards administrative expenses and only 5% or less reaches the needy, I feel that those institutions are a scam. Here’s a list of the 50 worst charities.
9. The catholic church. At one time, the catholic church used to sell indulgences “which may reduce either or both of the penance required after a sin has been forgiven, or after death, the time to be spent in Purgatory.” If you want to go to heaven, all you have to do is to give some mullah to the church. Thank you Martin Luther for revealing such a big scam.
10. Family and/or friends: When a family member or friend asks you to lend them money knowing that there is little probability to pay you back, this is a big painful scam.
11. The new boyfriend/girlfriend. As a money coach I have seen this one more than once. The new boyfriend/girlfriend needs a short term loan to fix a particular problem or take advantage of a fantastic opportunity. If the answer to the loan is negative, somehow the relationship dies shortly thereafter.
How can we protect ourselves from being scammed?
- Just by reading this blog, you are becoming aware of some of the most popular scammy practices. Being aware of different scams reduces the probability of becoming a victim.
- Don’t click on links of suspicious emails. Some of those links could download spying software which could uncover your passwords and other personal information.
- Do research in the Internet about the suspicious activity your are concerned about, followed by the word “scam” for example: “real estate scams.”
- Be skeptical when a business opportunity sounds too good to be true.
- Don’t give personal information to strangers, such as address, social insurance number, or date of birth. If your identity is stolen scammers can apply for credit using your name and you could end up being responsible for it.
- Take your time before making any financial decision. Consult with your friends, your accountant, your lawyer.
- Give to charities that have a good track record. At least 75% of your money should go towards the needy and less than 25% should go towards administrative expenses.
- Question the quality of your relationship if your new boyfriend/girlfriend asks you for money only a few weeks into the relationship.
If you would like to share other scams or if you have been victim of a scam. Please share your story. I will put it in the blog with a link to your website.
Scams experienced by readers of this blog:
I was desperate to find a place in Vancouver during the summer because my landlord back then sold his house.
I look all over craglist and found a post w really nice pictures and really affordable. The guy claimed to have to leave for a job in Europe and is already in Europe.
So he said he’ll send his keys through airbnb, which would hold his package until i send airbnb the deposit. If I didn’t like it after seeing the place then i return the package and airbnb return my money back
I was suspicious then because 1. Many people must have contacted him, but he picked me anyway without asking much about me? Not even skype? You don’t just hand over your place for a year to a stranger. 2. I use airbnb and i dont think they have that service
Anyhow, I called him out and contacted craglist about his post. I’m sure many people fell for it though.
Lesson, raise suspicion when things are 1. Too good/easy to be true 2. Involve giving money or personal information.
Recently the phone scam Canadian Delivery Express
There are those scam artists who hang outside the Bell Center before an event asking for donations. I once asked if I could have a pledge card to make my donation and the lady just ran away.