The number one thing that makes you susceptible to fraud

Investment News:

Prosecutors said Bryan C. Binkholder used YouTube videos, a talk-radio show and books such as the “The 401(k) Conspiracy” to cultivate clients in a fraudulent “hard money lending” program.

As part of the program, Mr. Binkholder — also known as “The Financial Coach” — said he would act as a bank for real-estate developers looking to purchase, renovate and re-sell homes.

The adviser made only a limited number of those loans, instead using the millions to pay personal expenses, interest to other investors and a salary for his wife, prosecutors said.

Why do people still fall victim to financial frauds – in the year 2015, when every conceivable piece of information that matters can be found on the web?

There are many reasons. One big one is a lack of education and the gullibility that engenders – this guy sounds like he knows more than me, I’d better take his advice. Another is laziness and the unwillingness to do any kind of due diligence – well, if there are other investors I know involved, how bad could this turn out?

But the number one thing that gets otherwise intelligent people preyed upon, in my opinion, is the arrogance to believe that they are somehow deserving of returns that do not exist for other people. The inner monologue goes something like this: I’m successful, I’m worthy of something unique that other people are not worthy of – something outside of the mainstream and special. Because I’m special.

Con artists know how to spot this mentality and exactly what to say in order to exploit it. There’s often an exclusivity to the pitch they’re delivering, a hushed and almost conspiratorial promise of “better” than all those other people are getting. This is how hardworking people can fall into a trap like “hard money lending” programs. “Yes, Treasurys are yielding only 2% but what if I showed you a way to earn closer to 10% with the same amount of risk?”

Most people know to walk away from the table at that point.

But some people have the personality type that forces them to say “Go on…after all, I am pretty special.”

You’re not that special. If it sounds too good to be true, it is. If it’s legit, it never would have found its way into your inbox.