You need to remain in charge of your investment decisions and to do so in an educated manner. Too many investors trust unscrupulous individuals and outright con artists to make financial decisions for them. The following actions can help lessen the chances of falling prey to scams:
- Ask questions. Perhaps the best advice when making any investment is to ask questions not only about the investment but to make sure it is right for you, given your financial situation.
- Research before investing. Fraudsters expect you to do little if any investigation before investing. They want you to fall for their pitch and believe that they have already done all of the research for you. The internet is filled with useful information. Check out details on Companies House, social media platforms and try to speak to others who have also invested.
- Know the salesperson or financial adviser. Before investing, you should check out the person touting the investment before you invest, even if you know the person socially. For example, you should verify licenses and investigate a person’s disciplinary history. You also should avoid judging an investment by how a person looks or sounds because these qualities have no bearing on the soundness of an investment opportunity. Swindlers want to appear polished and professional to create the impression that you can trust them.
- Be watchful of unsolicited offers. You should regard unsolicited sales offers with the utmost caution and scepticism, especially when they promise unusually high rates of return, quick profits, and “once in a lifetime” opportunities. Also, you should avoid being rushed and say no to anyone pressuring you to make an immediate decision.
- Be constantly vigilant. You should avoid making an investment and then sitting by the side-lines for the results. Instead, you need to monitor your investments by keeping track of their progress. You should insist on regular written reports and be sceptical of excessive trading. If you have trouble retrieving your principal or cash out of profits, you need to find out why.
- Know what to look for. If you understand little about the world of investments, you should take the time to educate yourself or talk to a qualified and an uninvolved party about the investment. By making yourself knowledgeable about different types of fraud and signs of any impending problems, you can reduce the chances of being deceived.
- Avoid making decisions when emotions are high. The worst time to make an important financial decision is when your emotions are elevated. Scammers are aware of this behaviour and know how to use your emotions against you. To avoid falling for a hoax, you need to manage your emotions around financial decisions
Red flags for investment fraud
- Investments with high guaranteed returns with little or no risk. Claims of huge gains with almost no risk are illusions or ‘phantom riches’ for unsuspecting investors, despite the efforts of fraudsters to convince you otherwise. All investments carry some degree of risk. Fraudsters dangle the prospects of easy money in front of you to entice you to buy. You should be suspect of such guarantees to avoid being scammed.
- Once-in-a-lifetime deals. Scam artists use the tactic of “Do not miss this opportunity – get in touch now!” to pressure you into making a quick decision. You should resist the temptation to invest quickly. Instead, take the time needed to investigate any investment opportunity and get independent third-party advice. Even speak to family and friends.
- Everyone is buying. You should beware of pitches stressing how “other savvy investors have invested, so you should too”. Just because others bought a product or security does not mean that it is a good investment or right for you. A variation on this theme is the claim that your friends are investing, so why should you not? This approach relies on the trust you place in your friends, which might be misplaced because they could be wrong, or the salesperson could be lying. If this is the case, then speak to your friends and double check.
- Pressure to buy quickly. Scam artists often create a false sense of urgency by claiming limited supply. They want you to buy quickly so that you will not have time to figure out their game. No reputable investment professional should push you to make a quick decision and so, you should steer clear of a pushy salesperson.
- Overly consistent returns. Although not applicable to all investments, you should be suspicious of investments, such as common stocks or equity mutual funds, providing consistently stable returns regardless of market conditions. Returns generally vary over time due to market volatility.
- Free seminar and meal. Another tactic that fraudsters use to attract investors is to offer a free seminar with the promise to educate those attending about investing strategies or managing money in retirement. The real purpose of such seminars is often to lure new clients and to sell investment products or services.
Fraudsters rely on the concept of reciprocity. That is, if they do a small favour for you, such as providing an expensive meal, you are more likely to do them a big favour in return and buy what they are selling. Although you might not get a hard sales pitch during the seminar, you can expect high-pressure tactics during follow-up contacts.
- Unregistered products and salespeople. Anyone offering to sell you an investment should be registered and licensed. You should research the background of the individuals and firms wanting to sell you investment products.
- Avoiding questions. If the salesperson does not answer your questions directly, this individual is probably trying to keep you from seeing the truth. Those who have nothing to hide should willingly respond to your queries.
- Overly complex investments and strategies. Legitimate professionals can explain what they are doing and ensure you fully understand the investment and its suitability for you. If you do not understand the investment, it probably is not right for you.
The creative imaginations of con artists permit almost limitless ways to swindle investors. Such scams are more prevalent than most realise. Many investors simply think that “it won’t happen to me.”
Your best line of defence against investment fraud is education and awareness. By understanding why people fall for scams and how to avoid them, you can reduce the risk of
becoming a victim.
Read our article on Investment Fraud
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This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.