Investment scams – What to look out for
Scams come in all shapes and sizes and are constantly changing and adapting. But you can usually avoid them by knowing what to look out for and playing it safe.
These scams are almost always unsolicited, known as ‘cold calling’ via a telephone call, letter or email offering you unbelievably attractive returns on your investment, or ways to avoid paying tax. Cold calling to sell investments is not permitted in the UK so it is likely that the scheme being offered is a scam from an unauthorised firm, often based overseas with no means of future contact or recompense.
It is a common misconception that only widows, retirees and low-income wage earners are the targets of investment fraud. This is wrong, swindlers do not discriminate. They have become sophisticated enough to target specific types of victims using data such as shareholder registers (often illegally obtained) to identify potential victims who are already investors and, therefore, are more likely to want to invest more.
Swindlers are skilled liars and can be very convincing that they represent legitimate and authorised businesses. Never assume that you will know a scam when you hear one. Swindlers convincingly offer attractive investments, and constantly devise new scams when current ones become common knowledge. They set up dummy websites, often clones of sites operated by authorised firms. They are also very skilled at dealing with your questions, or deflecting them.
You should never commit to anything unless you have looked into it first and checked the Financial Conduct Authority’s (FCA) website to check the FCA Register, the FCA Scamsmart page and the FCA Warning List. The links for these are as follows:
Look out for the following warning signs that you are being scammed:
• You receive unexpected contact about an investment opportunity. This can be a cold call, email, or follow up call after you receive a promotional brochure out of the blue. Generally in the UK, cold calling is not permitted and it is unlikely the caller is a UK regulated firm – just hang up.
• Pressure is applied to invest in a time-limited offer, for example, they offer you a bonus or discount if you invest now, or say that the opportunity is only available for a short period of time. UK regulations do not permit any pressure to be placed on potential investors to make a decision – just hang up.
• The risks to your money are down played, for example talking about how you will own actual assets you may sell yourself if the investment doesn’t work as expected, or using legal jargon to suggest the investment is very safe. The UK regulations require detailed explanations of risk and a full assessment of your ability to bear the risk of any investment – just hang up.
• Tempting returns that sound too good to be true are promised, for example, offers of much better interest rates or investment returns than those available elsewhere. The UK regulations do not permit such promises of returns as the basis for investing – just hang up.
• You are called repeatedly and kept on the phone for a long time, with the caller refusing to take no for an answer. The UK regulations do not permit such harassment or behaviour intended to wear down potential investors – just hang up.
• You are told that the offer is only available to you and you should not tell anyone else about the opportunity. The UK regulations do not permit such tactics – just hang up.
• You are asked to provide details of a credit or debit card for ID purposes. In the UK generally such information is not used for ID purposes. Do not provide any financial information; this may invalidate any chance you have of reclaiming funds subsequently stolen by fraudsters from your bank account – just hang up.
The FCA’s advice is that if you suspect a call you receive is a scam – hang up the phone, do not enter into dialogue with them.
The following are common types of scams
Land or property investments
Investing directly into land or property is generally an unregulated investment and can be high risk. Such investments generally are not regulated by the FCA and will not be protected by the Financial Services Compensation Scheme (FSCS), which means you will have no recourse to claim back any money at all.
Unregulated collective investments
In the UK such investments may only be promoted to certain types of individual, these being high net worth or sophisticated investors. Such investments generally are not regulated by the FCA and will not be protected by the Financial Services Compensation Scheme (FSCS), which means you will have no recourse to claim back any money at all.
Unsolicited contact regarding the sale or purchase of shares
Buying and selling shares is a regulated activity and any firm or individual wanting to sell you shares or buy your shares must be authorised by the FCA. It is unlikely that an FCA authorised firm would make cold calls as this is not generally permitted. If the firm you deal with is not FCA authorised then your investment will not be protected by the FSCS, which means you will have no recourse to claim back any money at all.
A binary option, or asset-or-nothing option, is a type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires ‘in the money’, or nothing at all if the option expires ‘out of the money’. It is extremely high risk and the FCA is concerned about an increase in fraudulent binary options firms targeting UK consumers. Binary options are not regulated by the FCA so your investment will not be protected by the FSCS, which means you will have no recourse to claim back any money at all.
Pension reviewsPension liberation or loan
Be wary of any offer to release cash from your pension before age 55, as it is likely to be a scam, known as ‘pension liberation’ or a ‘pension loan’ where it is claimed that you can ‘borrow’ money from your pension fund without penalty. Generally you can only access your pension when you are 55 or older and there are rules about how to do this without having to pay tax.
If you access your pension funds before the age of 55 it is very likely that you will have to pay a tax bill of at least 55% of the amount accessed, even if you claim it was a ‘loan’. This means taking cash from your pension before you are 55 is highly unlikely to be in your long-term financial interests.
Dealing with unauthorised firms or individuals
If you deal with an individual or firm that is not FCA authorised, you will not benefit from any of the UK regulatory protections that in in place. This means you will have no right to complain to the Financial Services Ombudsman about the transaction, nor will you be covered by the Financial Services Compensation Scheme.
If you are unsure about the status of an individual or firm you can check the FCA website and instructions on how to do this are included on page 1.
How to report scams and fraud
Action Fraud is the UK’s national fraud and cybercrime reporting centre.
Its website is http://www.actionfraud.police.uk/ where you can find lots of helpful information.
Making a report is relatively simple and the more people who report the better, even if no money was lost.
• Action Fraud telephone no – 0300 123 2040
• Link to report Fraud and cybercrime – Click Here
• Link to report if you have experienced phishing or malware approaches but have NOT lost any money – Click Here
• Link to report if you have experienced phishing or malware approaches and HAVE lost money – Click Here
How can we help?
If you are an existing client and have any concerns about being scammed, or if you are experiencing unwanted contact from suspected fraudsters then we would be happy to discuss this further with you and intervene on your behalf if necessary.
Our Compliance Director, Lisa Hamer, will take up the matter and deal directly with the individual or firm on your behalf and assist you in submitting reports to Action Fraud if appropriate.
This assistance is free of charge to our clients.
Lisa Hamer,Compliance Director, can be contacted at [email protected]