Falling for investment scams

Beware of offers that seem too good to be true.

Financial scams are becoming increasingly sophisticated and target the vulnerable, the uninformed and the greedy. The Financial Ombudsman Service can provide redress if you are given inappropriate financial advice by a regulated firm, whilst the Financial Services Compensation Scheme (FSCS) steps in if a regulated firm fails to meet its liabilities to you. However, the key word here is ‘regulated’. If your actions result from the activities of an unregulated firm then you are unlikely to have any recourse at all and may lose all of your investment. Check out the advice from the Financial Conduct Authority (‘FCA’) on how to avoid scams.

So how can you protect yourself from scams? Some are very convincing. First, check that the firm is regulated by the FCA, make a note of their number and then visit the FCA register to confirm the details. Comments along the lines of “our application is being processed” should immediately get your alarm bells ringing, especially if contact has come via a cold call. Then call the firm on the number shown on the FCA website and verify the contact details you have received – fraudsters can look very similar to a genuine firm.

Next, make sure you really understand what is being proposed to you. Does it seem too good to be true? If so, it probably isn’t. Try explaining it to friends or colleagues and gauge their reaction. Try an internet search to see if there are any useful comments and also check the FCA Warning List.

The essence of most scams will be along the lines of getting rich quick. Ask yourself why you have been singled out for this apparently attractive opportunity. If you had discovered such a successful idea, who (if anyone) would you tell? Investment markets are extraordinarily efficient at adjusting the price of assets to reflect their potential return and risk. If you are being hassled to make up your mind in a short time be extra careful.

EQ tip: High potential returns ALWAYS involve taking more risk. If that doesn’t appear to be the case then you probably haven’t understood the proposition well enough.

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