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The Advisor Delta™ is your essential guide to mastering the wealth management industry. Hosted by Worldsource Wealth Management, this podcast delivers expert advice, actionable insights, and innovative strategies to grow and elevate your practice.
Join industry leaders for interviews, thought-provoking roundtables, and quick-fire 'Ask Me Anything' Q&A sessions, as we cover everything from emerging trends to leadership development. The Advisor Delta™ is more than just a podcast—it's a partner in your success. We aim to provide high-value industry insights while building a community of like-minded professionals who can learn from each other’s’ experiences.
Start listening today and unlock the tools, strategies, and inspiration you need to elevate your wealth practice with The Advisor Delta™. For more episodes and insights, don’t forget to subscribe and visit us at www.worldsourcewealth.com. And remember, together, we can take your practice to the NextLevel™.
Narrator: Welcome to The Advisor Delta™, the practice management podcast dedicated to helping investment advisors grow their business and reach their goals. Whether you’re looking to scale your practice, streamline operations, adapt to emerging technology, or deliver value to clients - this is the place for actionable insights, thoughtful leadership and innovative strategies. Brought to you by Worldsource Wealth Management. Let’s dive in!
Kristen: It can happen in seconds, A single click, a fake invoice, and client funds vanish. Email fraud is no longer a distant risk. It's a daily reality for advisors around the world. I'm Kristin McElhone, national Vice President Partnerships and Advisor experience at Worldsource Wealth Management, and today's episode is all about the sophisticated world of email fraud and the steps that you can take right now to safeguard your practice.
Kristen: I'm thrilled to welcome a very special guest to break down how these scams work and the essential measures that can keep your clients and your reputation safe. Today we have Natasa Morfesis, Senior Vice President, Dealer Compliance at Worldsource Wealth Management. Nat has been with World Source for 15 years and is well known for her balanced and collaborative approach to navigating the regulatory landscape.
Kristen: Welcome to the podcast, Nat.
Nat: Thanks, Kristen. It's a pleasure to be on the podcast with you today. It is a topic that's near and dear to my heart these days. Email fraud is a critical issue affecting financial advisors and their clients and dealerships. According to the Canadian anti-fraud center business, email comprised costs of more than 5 billion worldwide when it comes to fraud.
Nat: It's no threat that an advisor can ignore. It's vital for advisors to understand how fraudsters operate, the devastating consequences of successful attacks and the essential strategies to protect their practice and their clients. Absolutely. Thanks, Nat.
Kristen: Could you start us off by giving us a sense of the scale of email fraud in the financial advisory industry?
Nat: Monumental, humongous so big that I don't even think people can put true value or true numbers to it. A lot of it is not reported, whether it's because people are embarrassed. So many different reasons as to why it's not reported. I know we say 5 billion worldwide, but it's likely much larger than that, but it is happening so frequently.
Nat: At Worldsource specifically, it's on average a monthly occurrence.
Kristen: So you've mentioned, you know, this once a month that we're seeing here at World Source. What percentage of these attempts are successful and why are they so effective? These attempts.
Nat: Good question. Lately they are more and more successful, and it's because what we call bad actors, those are the fraudsters, the hackers out there, the general term to describe them is bad actors. Okay? So bad actors are becoming more and more sophisticated with the methods they use.
Kristen: Can you walk us through how these sophisticated fraudsters or bad actors, as you called them, operate? What are some of the patterns you are seeing in their approach to compromising these client advisor communications?
Kristen: And can you maybe share with us some of the tactics they're using to blindside advisors?
Nat: They are far better at researching their victims. They could spend a month or more just monitoring a, a victim's email. Following their life, and I'll air quote their life, but getting to truly know the everyday habits and practices and what's going on in a victim's life, their patterns of speech even, or their patterns of writing.
Kristen: Nat, can you share a case where these tactics completely blindsided an advisor and what the first clue was that something was wrong?
Nat: Oh, sure. We had case in Ontario recently actually, where there was a withdrawal for renovations, seemed normal, actually was very much expected, and the fraud was discovered by the client.
Nat: When uh, he said, Hey, I just received, uh, conference. What happened in my account?
Kristen: So you shared with us that these fraudsters are typically monitoring email communications for a month or more before making their move. What red flags should advisors be watching for that might indicate this type of surveillance is happening?
Nat: Oh, you caught me there. That's really an impossible thing to do. What an advisor can do to support their clients is definitely encourage antivirus software on the client's computer as well as their own computer if one isn't provided for them by a company such as ours, for example. And check email. This is what I always encourage people to do.
Nat: Check your email for rules that may have been put in place that will divert certain emails. What fraudsters tend to do is they'll go into a client's email and in the background, whether it's their Yahoo, their Gmail, they will put rules in place and they will say, if you receive an email from Kristen McElhone, send it to junk.
Nat: Now most of us don't go and check our junk folder. We don't check our deleted folder, and we wouldn't even know that there's someone in the background communicating with you.
Kristen: That's so true.
Nat: Pretending to be me and the responses that you would be receiving are being diverted. It's very
Kristen: scary for sure. If an advisor suspects this may be happening, what's the first action they should take?
Kristen: Pick up the phone,
Nat: call the client, and if it is actually the advisor's own computer that's been compromised, unplug it and call tech support. It's a very scary prospect that it gets that far. But no, that's, it's unfortunate this isn't a question of if it's gonna happen, it's when is it gonna happen? Okay.
Nat: And I will give you a personal example 'cause. We're all subject to this. We could all fall victim to this. My email has not been hacked, but I have compromised an organization I've worked for. I was actually at a conference and later, hindsight is great. Later I found out that this is quite common. I was trying to log onto the conference internet that was being provided and I wanted to VPN into my organization, which I'm sure a lot of professionals out there do when they're traveling.
Nat: I clicked the link because it actually had my company name X company's conference click here. Sure enough, that was a false link, so it wasn't email fraud, but it does go into the whole bad actor trying to access your computer. And the link I clicked was actually allowing the bad actor to gain access to my laptop and what they do recently in today's world, what they do.
Nat: Is they will sit on a conference floor and we all know whether you're at a hotel or a ballroom, there's an advertisement of the company that's hosting the function. Mm-hmm. And they will mask a fake link as that conference. So you try to click into the local internet and sure enough, you've exposed yourself.
Nat: Wow, that is crazy. They go that far. It's pretty scary.
Kristen: It is getting scarier and scarier out there. So in this case, is there something that could have helped the advisor to discover this was happening? Some trigger they, they could have perhaps caught?
Nat: Yes. And this is not a knock on the advisor 'cause we all live in the moment and hindsight is always a hundred percent.
Nat: But every single time a fraud has been successful, it has always been as a result of banking changes, okay, to go along with that redemption request, whether it's simultaneous. So if they're asking for the redemption. And saying, oh, by the way, I need to update my banking or asking for the redemption, and then next day they're like, Hey, by the way, I changed banking.
Nat: If there is a banking request change that goes along with a redemption, I would bet you a dollar every single time. That is likely fraud. It is highly unlikely a client is changing their banking. At the same time, they're asking for a redemption request, so that should be the trigger. If you get the redemption request from the client and the banking change comes in right away, pick up the phone.
Nat: I can't say it enough. Pick up the phone, call the client.
Kristen: No, that makes a lot of sense. I mean, people do change banks from time to time, but it's not that common. So it being at the exact same time, not very likely. So it makes sense to question that for sure. Yeah,
Nat: it should always be your trigger. If I can leave you with anything, it's call the client when there's a banking change being requested.
Kristen: Okay, so let's next discuss, uh, a real world example. You had mentioned this case in Ontario where they knew specific details about a client's plans, uh, for a renovation project. Can you share with us what happened and how they used that information from the client?
Nat: Yeah, absolutely. This one was scary and, and I am gonna speak very high level to protect the innocent that have already been compromised and have been through so much because this is a very.
Nat: Stressful thing for a client, for an advisor, and for the dealership to go through. So in the Ontario example, the advisor had met with his client in their office. So this was not an over the phone or over email type of scenario. This was in person. They had discussed renovations to the client's home. So the advisor was very much aware that funds would be needed.
Nat: And then sure enough, the emails started and the client had been hacked. So the initial emails that went to the advisor were with respect to a withdrawal. Pretty large withdrawal from an account. Again, fully expected and anticipated, but what the fraudster did midstream shortly after the initial email, and this is what everyone out there should be very much aware of, is they took the client's email address and changed one letter in the email address and created a fake email.
Nat: So they changed an M as in McElhone to an N as in Nat, and when you're reading the email address, you tend to skip right over that subtle change for sure. And they continued to communicate with the advisor using the now fake email address. So there was no concern that the actual client would stumble across an email if they were to be looking, and they asked for uh, a second withdrawal.
Nat: And then eventually, as I mentioned earlier in the example, the client calls the advisor and said, Hey, uh, I got some confirmations about some redemptions. Like, what was that all about? And the advisor of course said, well, it's the redemptions you requested. And he said, Nope, I didn't request redemptions not yet, which got the ball rolling.
Nat: And thankfully the advisor knew enough to immediately contact compliance and head office, and we were able to work together.
Kristen: That's fantastic. It's so great that the client caught that so quickly and I think it's a lesson for a lot of us. I know I get a lot of mail and statements from financial institutions and they sit for a long time, so I think this is a good lesson to make sure you are opening those, whether they're email or are coming in paper forms so you can confirm that everything is correct.
Nat: Uh, even better encourage your clients to get on e notifications, whether they're statements or conference. 'cause had this client not been on. eDelivery for confirmations, it would've taken what a week, 10 days for them to even get around to looking at the confirm that they got in the mail. Definitely.
Kristen: So
Nat: I am a big believer in eDelivery 'cause it's instant.
Nat: Yeah.
Kristen: And I think it's another great reminder you made there to really check email addresses and make sure it looks right. That it's not just similar. I know I've had a number of cases before where somebody is trying to get you to do something like buy a buy gift card for the CEO and it's urgent and things like that.
Kristen: And if you take a look at the email address, it's definitely false. So I can see how easily this, this can be skipped if we don't take that step of verifying. So in this case that you've been speaking about. Were you able to help this advisor and client recover funds and, and was this person caught this bad actor?
Kristen: Ah,
Nat: bad actors are never caught. That's the sad part of all this. Fraudsters are usually overseas.
Kristen: Oh, okay.
Nat: It is extremely difficult to pinpoint them when they use VPNs that bounce from country to country to country. Uh, in this particular case, uh, we were working with the advisor immediately and we were able to, um, keep the fraudster on the hook.
Nat: Uh, if, if I can describe it that way. We told the advisor, just let 'em think we bought this, let's try and get some of the funds back. And sure enough, as with most fraudsters. They get very greedy and they came back for yet a third withdrawal and it happened to be a Friday, and the advisor knew what to say.
Nat: We worked with them and it was, sure, uh, it's Friday though. I need to do this on a Monday. And our hope was that we would keep 'em on the line or keep them on the hook and have that bank account still be an active bank account. And it worked. It sure enough worked. We were blessed. The advisor was blessed.
Nat: It did take over a week, but we were able to retrieve. All the money. There was a small loss to the advisor, which we can talk about, but the majority of the funds, and I'm talking tens of thousands of dollars were retrieved.
Kristen: That's fantastic. That's such a good news story, which as you said, doesn't, doesn't happen very often in these cases.
Nat: In a lot of cases, though, we aren't as lucky, funds tend to not be recovered because fraudsters are extremely quick. And the money has been moved before anyone even realizes that it's gone or that a fraud has occurred.
Kristen: Alright, so in this case, you said that you know, the money was recovered, but you also mentioned that the advisor still faced a loss.
Kristen: Why was that?
Nat: In almost every case we have where fraud has occurred. There's generally a loss to an advisor because of the lois that have to be done, or the cancel and corrects as your intention is to make the client whole. Oh, okay. So if a week or two weeks or longer has gone by, you're gonna correct the original redemptions in the client's account to what they were before this happened and that dilution.
Nat: Is always eaten by the advisor, unfortunately. Okay. But you know, a few thousand is a better loss than tens of thousands, so most advisors are happy to cover the costs of an LOI,
Kristen: for sure. That's definitely a much better outcome for both the advisor and the client. Definitely a hundred percent. Right. So let's talk about this liability.
Kristen: When the money, when the money isn't recovered, I think a lot of advisors might assume that their, um, e and o insurance would cover the losses from email fraud. Uh, why isn't that the case? In all
Nat: the years I've been dealing with email fraud, e and o has declined coverage. Every single time, and most dealers out there have almost identical e and O coverage, which means that most dealers out there also face the same issues with helping their advisors out cover those losses.
Nat: E and O will not cover it because our p and ps say you need to confirm your withdrawal instructions with your client. So they get you on technicalities. They also will get you on the fact that it was the client that was compromised and you didn't do anything wrong. So they tend to be typical insurance companies and try not to pay.
Nat: Uh, that's not a knock against e and o, but it is very common that they don't. Provide the coverage, which will lead me to a plug for World Source now because we do have a special rider that's being offered for the first time this year with a 2025 coverage. And it is a social engineering rider that's, uh, the catchphrase, social engineering.
Nat: So it is expanded. Coverage for cybersecurity. And as part of our e and o, we also have coverage up to about, I believe it's $35,000, where if you took instructions from someone who you thought was the client, it is now covered under our new policy effective in 2025 if the fraud is beyond that amount.
Nat: Beyond that amount is not covered. Bare minimum, uh, $35,000 coverage for the transfer portion, transferring money out to a fraudulent account, and then there's the other $5,000 social engineering coverage for email fraud. So pretty good coverage as far as I'm concerned, and I'm really happy to be able to offer it.
Nat: To our advisors.
Kristen: Yeah. That's great. That seems like a, uh, very small cost to protect yourself and as you said, for when this happens. Not, not if it happens. So when fraud like this occurs. Advisors obviously face that really difficult decision between telling clients that their, their funds are gone and covering that loss themselves As the advisor, what have you observed about how advisors are typically handling situations like this?
Nat: Advisors are generally upstanding individuals who feel horrible for their part in this fraud. Uh, it wasn't done willingly, it wasn't done knowingly, but they tend to take responsibility for it even in cases where they don't have to. Where it was clearly the client that was hacked. Yeah. Where EO doesn't cover it, where the advisor could, in theory go back to the client and say, Hey, I'm really sorry you were hacked, but.
Nat: That's not my fault. Mm-hmm. Uh, you didn't tell me your email was compromised. The instructions came from your email. So advisors will not do that. I have not found advisors that are willing to go back to a client and say, so sad. Too bad. In every case that we've had with email fraud, the advisor has always covered the loss one way or another.
Nat: And that's because there's a lot of reputational harm that comes with telling your client, I'm sorry, you're outta luck. You, you don't want the reputational risk with saying no to a client. You don't want the reputational harm of that client telling people that, Hey, my advisor mm-hmm. Took a fraudulent email and ran with it.
Nat: So they always cover it. But mostly for the reason that they are upstanding good people who don't wanna see their clients at a loss.
Kristen: Yeah, those relationships are very deep and it would be hard to walk away from that for them, I'm sure. So what specific verification protocols should advisors be putting in place so that they can validate redemption requests and banking changes?
Kristen: You know, why is verbal confirmation so critical in this today?
Nat: Good question. So verbal confirmation is even written into our policies and procedures. We've been encouraging advisors to create verbal passwords with clients for years now. And it's always been, don't share the verbal password via email.
Nat: Don't set up the verbal password via email because email is compromised. So when you're meeting with your client for the first time and you're opening up that brand new account. Put it in your client notes. What's the catchphrase or what's the verbal phrase if I'm questioning the instructions coming from you or your email, what phrase or what word are we going to use amongst ourselves were, I know it's truly you, I'm dealing with, that conversation should happen from day one.
Nat: And you should have it in your client notes. So if you do become suspicious, ask for the catchphrase, ask for the secret password. I think it does nothing more than show the client, the brand new client that you take their security very seriously.
Kristen: Yeah, I think that would definitely make me opening account, feel more comfortable when I know you're trying to tackle this right up front and, and make sure I'm protected going forward.
Kristen: So with AI technology advancing so rapidly, these fraudsters can now potentially mimic voices for. Phone verification. I mean, I've seen videos of somebody who records themself in one language and then replicates that video in multiple different languages and you could never tell that they weren't all the original video.
Kristen: So I can see how easily someone could. Take a client's voice and use it in the phone call. So how are advisors staying ahead of those changing threats with all of these AI advances?
Nat: It's uh, really hard to do that. You've pinpointed it, right? Sometimes they pretend they're prime ministers. Other times they pretend they're president.
Nat: So trust me, someone can take this podcast, replicate either of our voices. And call our mothers or fathers. All right, cut. We're done.
Nat: Yeah, but they can't replicate that secret password. Right? So true. It doesn't matter what your voice sounds like. When I ask you what is that secret word for redemptions that we've discussed, or what's that phrase? AI's not gonna know that.
Kristen: So I think we're in a time now where. We are trying to be so security conscious and doing everything we can to protect clients and help our advisors protect their clients, but I think that has that second side of it can really scare the client into wondering how secure everything is.
Kristen: If you're telling me my voice may not be secure and I can't email you in, my email may not be secure. So what's sort of that balance between. Vigilance and maintaining that positive, trusting client relationship. How have you seen advisors turn this into a positive part of their relationship with their client?
Nat: I think it works well for advisors to have the conversations because fraud in general is something that's all over the news. Printed media online, everyone's talking about fraud and how it occurs. It doesn't matter what social site you're gonna be opening today, there's gonna be someone crying about how they lost their life savings.
Nat: So the conversation or setting the groundwork for that conversation is quite easy. And being proactive and saying, Hey, I'm concerned not about you, but in general, and I'm doing this with all my clients, so here's the game plan. We're gonna set up the catchphrase if one isn't already there. Mm-hmm. I want to show you how to hover over an email address to see if it's truly coming from the person you're expecting it to come from, because let's remember, hovering over will likely show us it's from.
Nat: Somebody in some foreign country with some weird email in the background. And also one thing that uh, most people don't discuss is the masking of telephone numbers. 'cause this isn't just about email fraud, this is about phone fraud. Fraud in general has expanded. It's in every fiber of our being now.
Nat: Mm-hmm. So these conversations are not going to be difficult conversations and being proactive about having these conversations with clients shows the client that you care, that you're there to protect them, in that you're providing them with the information they need to protect themselves.
Kristen: So looking ahead, how do you see the landscape of financial fraud evolving? What do you think our advisors should be preparing for, uh, in the next few years?
Nat: It's not a laughable moment, but, uh, fraud in general is just going to become more and more sophisticated, which I believe will force us to become. Less and less sophisticated in our communication methods. Mm-hmm. I think our advisors are gonna find themselves going old school.
And picking up the phone a lot more frequently than they were thinking that they would have to, or hoping that they would have to. It's gonna take a lot more time with each individual client to try and combat fraud. But again, you're only worried in the cases of redemptions. Yeah. You're not worried if the client's depositing money.
So maybe your time savings comes in the deposit of money into accounts and the trading aspect of an account. But you start spending more time in the withdrawal portion.
Kristen: I think we went so quickly into everything going online and signing documents online. And now with all of this fraud, we sort of joke it's, are we gonna have to go back into offices and sign everything and everything, be in person again?
So I don't think we're going that far with a lot of these tips you've shared, but it's, it's sort of interesting to think about that quick transition to digital and maybe back a little more.
Nat: I think if we just pick up the phone and talk to each other a little more, we won't have to go back.
Kristen: Do you have any last pieces of advice or information you'd like to share with our listeners?
Nat: I would, I wanna encourage Worldsource Advisors and any advisor out there that happens to be listening. Yeah. Even if you're from another dealer, if this has happened, if you get that gut feeling that something just went wrong, or if your client calls you and says, Hey, what the hell just happened?
Nat: Call your compliance department. Call your dealer. Don't be ashamed. As I mentioned during this podcast, I click the link like I fell for it. We can all fall for it. So please do not hesitate. 'cause the quicker you bring this to the attention of people that can help you, the greater the possibility that maybe some of that money can be retrieved.
Nat: So please if I can leave you with anything, don't hesitate to ask for help if some sort of fraud has happened.
Kristen: As we conclude this eye-opening episode of the Advisor Delta, I wanna thank you, Nat, for pulling back the curtain on the reality of email fraud in our industry. What we've heard today is sobering for sure.
Kristen: Yes. Fraudsters are these bad actors are patient, they're strategic, and they're frighteningly sophisticated, but with the right safeguards that you shared with us in place. Prevention is possible.
Nat: Yes, and remember the trigger is if they asked for a banking change, pick up the phone. Definitely make that little bell in your head go off every time they ask for a change in banking when they've just asked you for a redemption.
Kristen: Definitely the takeaways are clear, as NA just said, never take email instructions at face value, especially when they involve banking changes and redemptions. Implement verbal verification protocols for all significant transactions today and remain vigilantly aware that sophisticated fraudsters are constantly evolving their tactics.
Kristen: It's such an easy, simple solution to combat fraud and it's free. Always go with your gut, Kristen.
Nat: For sure. If you think something is wrong, it is likely wrong.
Kristen: And remember, e and o insurance typically won't cover these losses, which means that the financial burden often falls directly on the advisor except for Worldsource with our new policy in effect this year, definitely not for sure.
Kristen: Fraud can happen in seconds, but so can prevention if you put these measures in place today. Thank you for listening to the advisor Delta. Keep protecting, keep evolving, and remember your clients trust you with their future. Guard it like it's your own. Until next time.
Narrator: Thanks for tuning into The Advisor Delta™! We hope you found today’s episode valuable to supporting your practice. For more episodes and insights, don’t forget to subscribe and visit us at www.worldsourcewealth.com. And remember, together, we can take your practice to the NextLevel™. Until next time!
Worldsource Financial Management Inc. (a mutual fund dealer) and Worldsource Securities Inc. (an investment dealer), are divisions of Worldsource Group of Companies Inc., operating as Worldsource Wealth Management. The views and opinions expressed in this podcast are those of the participants only. This podcast is for informational purposes only and does not constitute financial, legal, or professional advice. Listeners are encouraged to seek professional guidance for their specific needs. Worldsource Wealth Management does not endorse any products, services, or companies mentioned in this episode.