If an investment offer sounds too good to be true, it probably is. But even experienced investors can be tempted by sophisticated scams, especially in a low-interest environment when higher yields are hard to find.
Investment scams can come in the form of “cold calls” or emails from supposed financial planners or investment advisers who offer high returns from share, mortgage or real estate schemes, or from options and foreign currency trading.
These people may claim to be affiliated with a local firm whose name you recognise, but they’re probably operating from overseas and they won’t be licensed.
Beware “inside” share tips
Other scammers use investment forums, offering “inside tips”. What they’re actually doing is trying to boost the price of certain stocks, so they can sell shares they already own for a huge profit. The shares’ market value will then go down dramatically, leaving you stranded with a dud stock.
Seminars are another popular way to make money — from you. Investment “experts” and “self-made” millionaires will have lots of advice about what are in reality high-risk strategies such as borrowing large sums to buy property or other investments.
Inevitably, there’ll be pressure to act quickly, while you’re in the room and separated from access to independent financial advice (or a moment to think straight). The claims are likely to be exaggerated and there may be fees and commissions hidden in the small print.
Good investors wouldn’t need to hawk their services
These scammers make money from those fees and commissions, from seminar attendance fees, and from overpriced reports and flashy books.
Think about it: they wouldn’t need to do this if they were so good at investing themselves.
These con artists are forever dreaming up new ways of separating people from their money. In the meantime, here are seven ways to protect yourself:
1. Offers of high returns, delivered quickly and at low risk should raise your suspicions right away.
2. If someone is putting pressure on you to "act quickly", that's another warning sign. They are relying on the psychology of FOMO — Fear of Missing Out.
3. Never give your financial details to an unsolicited caller or reply to emails offering financial advice or investment opportunities. Hang up. Delete.
4. Check your consumer and financial regulators' websites for known scams and firms you shouldn't deal with. See the international regulator alerts portal here.
5. Check that individuals and firms are who they say they are, and that they are appropriately registered. You should also independently cross-check the office addresses they give.
6. Don't let anyone pressure you into making commitments on the stop, even if they make reassuring noises about cooling-off periods. Always get independent legal or financial advice first.
7. There are no "quick and easy" ways to get early release of funds from official retirement schemes. In the UK, pension fraud robbed almost 3,750 people of an average of £82,000 each in 2018. Don't listen to callers who reckon they can get your money out and invest it for higher returns elsewhere (or take it for themselves).
Be ScamSmart
If you want to learn more about investment and pension scams, you will find a wealth of information in the ScamSmart section of the Financial Conduct Authority website. There’s a list of warning signs to look out for and a pension scams quiz, so you can see for yourself how hard it can sometimes be to spot scam. There’s also a wide range of resources to download.
Report any suspicions
Finally, if you suspect you have been contacted by an unauthorised firm or individual carrying out an FCA-regulated activity, do report it. The sooner that scammers are dealt with the better it is for everyone.
If you found this post interesting, you may also like to read our recent article on scams in general. Picture: Doug Swinson via Unsplash
