Five key differences between real and fake investments

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As with anything that involves money and risk, investing has never been a straightforward matter – if it were, everyone would be richer.

It is a skill. It takes know-how to get to grips with the detail and the pitfalls. Only time and experience teaches you how to tell the difference between a great opportunity and a massive gamble; when it's worth pursuing despite the odds, and when to cut your losses and quit.

You might be one of the savvy ones. Perhaps you know your Pyramid from your Ponzi scheme, Forex from Binary Trading, Pump and Dump from Offshore Investments. The bad news is, financial fraudsters are trained to take whatever knowledge you have and build on it.

After all, this is why you pay a legitimate investment advisor to sift through the small print and pinpoint the opportunity that is ideal for you.

So here are five key differences between real and fake investment opportunities.

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The website lacks a certain authenticity
It is professionally put together, you can call the number and reach a receptionist, but there may still be warning signs.

Perform a Who Is search. If the owner, address or registration details don't match the details on the website (or they've paid to keep them hidden), something fishy is going on. A legitimate company is happy to let you know where they are based.

If they claim to have won an award, check it. If it links to a YouTube news story, and they appear to be the only one ever to have won this award ­ – question its validity.

Pick out a paragraph from the site's disclaimer and search for it on the Internet – has it been copied and pasted from a different site? Genuine stockbrokers hire a team of corporate lawyers to ensure their disclaimers and terms of use are specific to them.

The written promises sound hollow
The letterhead and logo on the letters and emails you receive suggest it's a genuine company, the language and presentation is authoritative and professional, and the information contained seems beneficial to you.

If a company sends you glossy prospectuses, brochures, share certificates or receipts, and lengthy testimonials from reputable organisations, you may want to wonder why they're trying so hard. The idea is to provide you with so much positive information, you feel you've done adequate research by only looking through what they sent you.

Verify all statements and claims with independent third party information. Check thoroughly for obfuscation and misinformation. If you receive a letter from a reputable source, contact them through the details on their official website, rather than the ones provided.

Businessman using mobile smart phone with magnifying glass

You are being cold-called
The person on the other end of the line is doing his or her job. You're being listened to, it's good to have someone talk you through the minefield of jargon and hoops, and the rapport you're building makes you feel safe.

Cold calling is the ideal method to emotionally manipulate. Once they have you on the line, they can employ a series of high-pressure tactics, from cajoling to even threats, to convince you to part with your money.

Treat all cold calls as suspicious. Legitimate firms are very unlikely to contact you in this way about investment opportunities.

It sounds too good to be true
Those peddling investment opportunities will guarantee high, quick returns, with tax-free benefits. Or no/low risk investments where you can sell at anytime, get a refund if it isn't performing well, get discounts, in fact, anything short of promising the Earth.

An investment advisor that is authorised by the Financial Conduct Authority (FCA) won't suggest breaking the law, ask you to trust them, tell you lack of funds isn't an issue because you can always get a loan, give you a hot tip or privileged inside information, or let you in on an opportunity to invest in the next big thing before others get to know of it – he or she needs to be honest, follow the rules and tell you the risks involved.

They claim to be regulated
Their paperwork may boast of awards and claims of being approved by respected regulatory bodies, but if there is one thing to be learned here it's this: never take their word for it.

Before investing, check the FCA's Financial Services Register to see if the firm or individual you are dealing with is authorised or registered. If you deal with an unauthorised firm you will not be covered by the Financial Ombudsman Service or Financial Services Compensation Scheme if it goes wrong. To confirm the identity of an authorised firm on the Register, ask for their 'firm reference number' (FRN) and contact details, but always call them back on the switchboard number given on the Register rather than a direct line they might give you.

If you're considering an unsolicited investment offer, check the FCA Warning List which displays a list of firms and individuals that the FCA knows are operating without its authorisation. The web tool helps you search this list, find out more about the risks associated with an investment opportunity and the steps you can take to avoid investment scams.

Get impartial financial advice before investing. You can find a financial advisor on unbiased.co.uk, Find an adviser and VouchedFor. If you are looking specifically for a stockbroker or wealth manager you can also try the Wealth Management Association (WMA).


For more information on how to be a ScamSmart investor visit fca.org.uk/scamsmart. If you have lost money to a suspected investment scam you should report it to Action Fraud on 0300 123 2040 or online.