How to steer clear of investment scams

Everyone has heard about how con artists convince people to invest money in fraudulent schemes, but nobody expects to be a victim of such a scheme. Unfortunately, investment scams are widespread and harder to spot than you might think. After all, those with the most to lose are often those who should know better, and it’s precisely these individuals and institutions that the fraudsters most want to target.

An investment fraud is any instance where someone is convinced to make a financial decision based on false or misleading information. The person or organisation pressuring you to make that decision is generally the same one that will receive your money, although often this isn’t made clear at the time. Ultimately, you will lose all the money you put in and they will take it, along with similar amounts from countless other people. This money will never be seen by you or them again.

It could be anyone

No one is immune to this kind of fraud. While some offers seem obviously dodgy (at least with hindsight), others are extremely subtle and convincing. The successful fraudsters don’t just target the uneducated, the naive, the gullible and the greedy. They also take money from careful, well-educated and experienced investors. Often schemes are tailored to a particular type of person, using psychological profiling and advanced persuasion techniques. Even established banks and financial institutions have weak spots that can be exploited.

The right channels

One way to minimise the risk of being conned is to always make your investments through the right channels. Be extremely wary of unsolicited offers that arrive by phone or email, and always invest through a well-established and reputable broker. The website We Compare Brokers provides unbiased, independent reviews of online brokers, together with side-by-side comparisons and advice. Sites such as this are invaluable for finding out what people really think of their experience with different brokers, and for establishing which one is right for you.

Start digging

You should also do your own independent research into any institution you’re being invited to invest in. Who are they? What is their history? Where are they based? Be sure to ask plenty of questions, but don’t just believe the answers they give you. Every “fact” needs to be corroborated, by you, from at least two trustworthy independent sources. The extent fraudsters will go to in order to fabricate a convincing back-story is incredible. After all, they stand to make a lot of money if they pull it off.

Red flags

While some scams can be extremely convincing, there are also some telltale signs that should raise the alarm immediately. A good rule of thumb is that if an offer seems too good to be true then it probably is. Alongside this, if you are told that an investment is risk-free then it is probably very risky indeed. In addition, if high returns are guaranteed then the chances are that you’ll lose everything.

The bottom line is that all investments are risky and anyone who says otherwise is either unreliable or a liar. However, while the above statements should be taken as a red flag signalling that you should proceed no further, the absence of these statements doesn’t necessarily mean an investment offer is legitimate. Smart fraudsters may deliberately undersell an investment and may come over as authentic and genuine.

Stand firm

Don’t fall for charm or a likeable manner. Check the facts and make sure they can be backed up. Don’t succumb to pressure from the seller to “act now”. These fraudsters prey on our natural inclination to trust others and to make emotional, impulsive decisions. They manipulate our sense of uncertainty, and worse, our sense of hope.

They also like to make people feel as though they’re part of an exclusive community, or that they’re smarter than average for taking advantage of an offer. In fact, if you think you’re more intelligent or knowledgeable than most, you’re actually more vulnerable to being exploited, because you’ll be less cautious in your decisions.

Frauds can be extremely hard to spot and even harder to walk away from. Sometimes it can be even more difficult to admit that we’ve been had. Many victims of financial fraud assume that nothing can be done and just let it go rather than face the embarrassment of reporting the case to the police or other authorities.

If you’ve been a victim of financial fraud, always report it. There’s no shame in being a victim, as you were cynically exploited by experienced professionals, who, in many cases, rely on their targets not reporting the fraud, even after it’s obvious what has happened. Although there are no guarantees, it’s always possible that the authorities may be able to catch the perpetrator, with your help. The warning signs may not be clear, but the actions you should take afterwards are.

Relevant news