Financial fraud 2.0: Guarding next-gen investors against AI-driven scams

From facial recognition to smart cars to banking to financial advice, artificial intelligence and its capabilities have become increasingly integrated into our everyday operations. 

However, with this quickly advancing technology comes a scary new reality: the rise of sophisticated financial fraud. Though financial fraud has traditionally targeted seniors, the rise of AI has democratized its reach. 

While some might assume younger investors are immune to fraud due to their intelligence and digital savvy, a recent feature in New York Magazine demonstrates that even highly knowledgeable younger investors can become victims of scams. In the article, financial journalist Charlotte Cowles documents her costly encounter with a team of sophisticated scammers and reflects on the stereotypes typically associated with fraud victims, including labels like "senile," "hysterical" or "rube."

Traditionally, financial scammers have preyed on the older population by exploiting their lack of tech savvy. But in the age of AI, clients of all ages and education levels are susceptible. With the expansion of social media platforms, younger individuals have become exposed, as scammers often target individuals who are more engaged online. Unlike older age cohorts, who may be more cautious or less active online, younger generations tend to interact extensively in various social media platforms, where their personal details can sometimes be easily accessed.  

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The tools that were created to help drive progress and efficiency are now helping scammers impersonate individuals, create synthetic identities, intercept calls and use social engineering to exploit individuals and their finances. Financial advisors can play a crucial role in educating their clients about emerging scams that not only target them, but also pose risks to their children. 

Identifying financial fraud

By educating clients on the specific tactics of scammers and suggesting preventative actions, financial advisors can protect their clients' interests while also strengthening the advisor-client relationship. 

Some of the most common types of AI-driven financial fraud include:

Voice impersonation scams. With the use of deepfake technology, scammers can impersonate individuals with replicated voices over the phone. 

Synthetic identity fraud. These scams combine real and fake identities, making them appear legitimate to bypass identity verification processes.

Call interception. Scammers can use software programs to intercept calls to banks and other financial institutions to reroute wires and transfers or collect financial information and passwords for future fraud.

Social engineering. Using AI to analyze personal data from across social media platforms, scammers can create targeted phishing emails or messages, manipulating individuals into giving sensitive information or downloading malware.

Investment scams. Fraudsters can use AI to create fake platforms with misleading financial advice, often involving cryptocurrency.

An ounce of prevention

Furthermore, by discussing preventative measures with clients and tailoring guidance based on individual preferences and concerns, financial advisors can encourage clients to take proactive steps to combat fraud before it occurs. Here are key actions:

Educate and raise awareness. Stay updated on the latest scams, techniques and technologies. Take the time to educate clients on these threats and how to spot them. 

Utilize secure communication channels. Encourage clients to use secure communication channels, such as encrypted messaging apps or phone lines — especially when discussing sensitive financial matters.

Use privacy settings on social media. Emphasize the importance of reviewing and adjusting privacy settings on social media to limit the amount of personal information visible to the public.

Monitor financial accounts. Advocate for clients to develop a routine of regularly checking their financial accounts for any signs of unusual activity.

Report suspicious activity. Urge clients to promptly report any questionable behavior or fraudulent attempts to the appropriate authorities.

By staying on top of the evolving landscape of financial fraud, advisors can equip their clients with strategies to safeguard against potential threats. Moreover, by demonstrating their commitment to protecting the financial well-being of both current and future generations, advisors can foster a sense of trust and strengthen their relationships with clients.