William and Mary Law School

An Excerpt from "Deception, Decisions, and Investor Education"

An excerpt from Professor Jayne Barnard’s article "Deception, Decisions, and Investor Education" (Elder Law Journal 2010) is below.  For the full article, please click here.


 Tens of millions of dollars each year are spent on investor education. Because older adults (those aged 60 and older) are disproportionately victims of investment fraud schemes, many educational programs are targeted at them. In this Article, Professor Barnard questions the effectiveness of these programs. Drawing on recent studies from marketing scholars, neurobiologists, social psychologists, and behavioral economists examining the ways in which older adults process information and make decisions, she offers a model of decision making (the “deception/decision cycle”) that explains why older adults are often vulnerable to investment fraud schemes. She then suggests that many of the factors that contribute to fraud victimization are unlikely to be influenced by fraud prevention education. She suggests some alternative uses for the money now spent on fraud prevention education that would better achieve the goal of protecting older investors.


Fraud schemes aimed at elderly investors are now a commonplace American tragedy. Year after year, and in state after state, clever con artists extract hundreds of millions of dollars from old people by enticing them into fraudulent investment schemes.

Some of these investors are victims of traditional brokers or investment advisers who churn their accounts or misappropriate their funds. This Article, however, focuses on different types of schemes: high-pressure telemarketing campaigns, “free lunch” seminars, websites promoting illusory securities, sales of products deliberately designed to look like they are not securities but charitable contributions or probate-avoidance devices, and other inventive narrative structures whose objective is to separate older investors from their money.

For years, the Securities and Exchange Commission (SEC) has identified these kinds of schemes as one of the Commission’s priority enforcement objectives. …  Alongside its enforcement initiatives, the SEC has also allocated significant resources to the task of fraud prevention education, frequently focusing specifically on schemes aimed at elderly investors. Dozens of other organizations have joined in this effort, including state regulators and brokerage firm giants.  Though the financial details of these programs are not easily available, I estimate that these groups collectively spend tens of millions of dollars annually to fund fraud prevention education aimed at older adults.
This Article asks whether that money is well-spent. Is an educational message -- even a well-designed educational message -- likely to insulate elderly investors from becoming fraud victims? Or do elderly investors exhibit certain characteristics that inhibit their ability to absorb the educational message? I suggest that several characteristics of older adults -- cognitive deficits, impulsiveness in decision making, a “truth bias” causing them to believe what they’re told by someone who appears to be authoritative, a longing for intimacy, an irrational but powerful excitation at the thought of ending up poor and dependent on their children – these and other characteristics thwart the good intentions of fraud prevention education. By drawing together recent research into the decision making styles of older adults, we can see why (1) they are disproportionately victims of fraud and (2) educational messages aimed at older adults are likely to fail.

The Article will unfold as follows: In Part II, I will briefly sketch out what we know about fraud schemes aimed at older investors, largely to emphasize the kinds of sales techniques and message strategies that have been successful with this population.  In Part III, I will examine recent scholarship about information processing by older adults, and studies concerning their receptivity to specific types of marketing messages. These studies suggest a strong neurobiological component, as well as a psychosocial component, in the making of consumer and investment decisions.

In Part IV, I will turn to the question of investment risk. The conventional wisdom is that people’s risk tolerance declines with age. Risk tolerance, however, is as much a factor of wealth as of age. That is, some older adults – especially those with discretionary funds -- may affirmatively embrace risk. Unlike some fraud victims, who may fail to recognize the risk they are taking, victims with an appetite for risk may see their aggressive investment choices as part of their “character” or a mark of their manhood.

Part V will consider additional influences that may cause an older adult to respond to sales claims promising implausible investment returns. These influences include grandiosity, greed, pride, and a desire to please others. Still other influences, from diet to mood, also contribute to older investors’ scamming vulnerability. Part VI will consider the content of current fraud prevention education efforts. It will offer some obvious and less obvious criticisms of these efforts. The fact is, much of today’s fraud prevention education may totally miss its mark. Part VII offers some alternative strategies that might better advance the objective of fraud prevention, especially among older adults.