How to spot an investment scam

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If investment scams were easy to spot, the fraudsters would have given up and focused on a different area long ago.
The methods they employ aren't as obvious as, say, a poorly written email from a foreign businessman offering millions in exchange for bank details. Because of the nature of investments, their targets are likely to be savvy people with experience in financial dealings, so they are fully aware that any approach that causes suspicion will immediately be disregarded.

Which is why investment scam artists do their homework. They scrutinise the official methods, possess a thorough knowledge of all the legal issues and loopholes involved, and appear highly professional in their conduct.

Finger at 'SCAM ALERT' On Keyboard Button

In many cases, financial fraudsters can seem every bit as qualified as legitimate investment advisors. From the letterhead and the website, to the testimonials and endorsements, everything will look impressive and above board. In fact, they positively prey on their victim's confidence that they are savvy enough to tell a con straight away.

So put yourself in a potential investor's position for a bit - how do you tell a genuine offer from a swindle? Here are a few signs that should send alarm bells ringing.

An unsolicited investment offer
Investment scams often begin with a cold call.They may pretend they aren't cold calling you by referring to a brochure or an email they have sent you. Legitimate firms are very unlikely to contact you in this way.

Suggesting ways to bend the law.
You're asked a specific question, such as, 'do you know about the recent changes in the way you can access your pension? What if I told you there's a way you can get extra tax savings, higher interest returns on investments, and even take your pension early?' If someone offers something that goes against what the government or financial regulator says, treat it as suspicious.

Assuring you it's all risk-free.
Any investment pitch that guarantees a specified return, something fraud-fighters term 'phantom riches', should not to be trusted. Legitimate salespeople are obliged to point out the financial risk involved in any investment.

Offering the comfort of company.
Everyone knows investment schemes are likely to work when a lot of people are investing. The promise of 'everyone is doing it' is designed to make you feel assured and pressured, while preying on your fears of missing out. You'll also be made to feel in good company because it will always be a group you consider like-minded that they will cite as your peers.

The 'see for yourself' investment.
T
his is a situation where you will be pointed towards a get-rich-quick scheme receiving predominantly high praise on the Internet. It may have its fair share of negative reviews but ultimately you will walk away from your research thinking that, if you are smart, money can be made. All you need is the right guidance - which is where your new 'friend' steps in.

You feel obligated or rushed.
I
t would be wrong to say a legitimate investment company won't use tactics to entice or try to convince you to invest while the iron is hot. These are salespeople – it's their job. But consider it a red flag if they tell you you'll miss out unless you act now. A reputable organisation should not rush you into a decision or make you feel like you owe it to them to sign.


Before you invest with an individual or firm always verify their credentials. Do not use the links provided by them. Check to see if they are authorised or registered by the Financial Conduct Authority (FCA) using the Financial Services Register. Firms and individuals can only conduct regulated financial services activities in the UK if they are authorised by the FCA or registered to do so, or are otherwise exempt.

To learn about the potential pitfalls in relation to an investment offer, check the FCA Warning List.

For more information on how to be a ScamSmart investor visit fca.org.uk/scamsmart.