The Wire: Summer 2019Investment scams and the danger of complacency

Investment scams and the danger of complacency

You might think you’re not susceptible to a scam, but complacency is exactly what increasingly experienced scammers are preying on. Sadly, nobody is immune, no matter how shrewd you may be. We can all fall foul of the ‘it won’t happen to me’ psychology, especially with a busy lifestyle.  

Figures from Action Fraud show that 22% of over 55s believe they’ve been targeted by an investment scam in just the past three years. Worse still, the figure rises to 32% for over 75s. But the problem isn’t limited to retirees; last year the Financial Conduct Authority (FCA) found that a substantial £197 million was lost in total to scammers.

One of the most common scam introduction methods was cold calling. The pension scam consultation actually found that there were as many as eight scam calls every second, equivalent to 250 million a year. The government has responded with a cold calling ban; businesses that make unsolicited phone calls to people about their pension can face fines of up to half a million pounds. But, internationally, it’s proving challenging to regulate and enforce. Scammers have also reacted by changing their tact, using alternative contact methods. Consequently, the number of people enticed by misleading adverts, emails and posts online has risen dramatically.

What to look out for

The FCA warns that typical scams include:

  • A free pension review
  • ‘Guaranteed’ high returns
  • Intentionally complex investment structures

High-pressure tactics are often used to force a rushed decision to invest. They might suggest it’s an extremely limited offer or higher returns can be achieved if you invest immediately. On the other hand, in some higher value cases, scammers have spent time and effort befriending their victim. On the FCA’s scam warning list the top three most searched scam investments are currently:

  1. Cryptocurrency (such as Bitcoin)
  2. Binary options
  3. Foreign exchange

The FCA has reported that in 2018/19 over £27 million was lost to crypto and forex investment fraud. Whilst the mean average cost per person was relatively modest at £14,600, it’s highly likely there were some victims substantially out of pocket.

In the previous year, a staggering £38 million was lost, with a much higher mean average of £59,600. The decrease in year-on-year figures may reflect a change of tact by the con-artists and increased awareness and diligence amongst higher net worth investors.  

In any circumstance, be immediately wary of any crypto and forex investment ‘opportunities’.

Hacks, clones and deception

When buying property or transferring a large sum of cash, there is an immediate risk and con artists have recognised an opportunity. In previous deceptions, fraudsters have hacked into the email chain between the home buyer and their solicitor. In the sophisticated attack, they bide their time until the opportune moment and pretend to be the solicitor, emailing their own bank details to make the transfer. Past victims have found it impossible to reclaim their money.

Whenever we receive withdrawal instructions by email we have rigid procedures in place. We will always call to verify the instruction, even if the payment has been made before. Unfortunately, not all wealth managers are this diligent.

It’s not just email accounts they can hide behind to deceive you; it is now possible to clone phone numbers, so a call will appear as if it’s from your legitimate provider, accountant or wealth manager. If you do receive a call requesting account details or recommending a transfer of funds for any reason, immediately question its legitimacy.

Cloned websites of genuine businesses also exist, which may contain misleading information and different contact details. Fraudsters have also been known to arrange for fake reviews, claiming others have happily and successfully invested. You do need to keep your wits about you.  

Avoiding FOMO investing

FOMO is the “fear of missing out” – the anxiety that something bigger or better is happening elsewhere. It can lead to irrational, regrettable decisions. Financial FOMO can be driven from several influences, including:

  • Social media, such as LinkedIn and Twitter
  • Water cooler conversations
  • Social gatherings
  • News and media

But, edited highlights of someone else’s success or select information can be very misleading. When FOMO creeps into your investment strategy the results can be devastating.

An immediate red flag is the promise of unrealistic guaranteed returns. There really isn’t a way to ‘beat the market’; if it sounds too good to be true…

Even if the investment has an element of legitimacy behind it, it will be especially volatile, risky and the returns promoted wildly unrealistic. Investment risk warnings and certificates on promotional material might make them appear more trustworthy, but don’t be fooled. Naturally, you want your investments to grow, but the higher the potential return the higher the risk.

Furthermore, we have recently experienced increased levels of market volatility, thanks in part to the current political and economic uncertainty. But, with volatility comes the potential for doubt. This presents an opportunity for scammers, who will try to capitalise on your concern. Reviews of your portfolio should be made regularly, but don’t let FOMO make you second guess sound long-term investment decisions.

We have built our firm on integrity and trust, because doing what is right for you is best for our business. HFMC has been awarded Corporate Chartered status by the Chartered Insurance Institute; the industry gold standard for financial planners evidencing ethical practice, professional, competent and knowledgeable advice and a commitment to providing service and support of the highest quality. Our ongoing commitment means that we are accountable; we say what we do, and we do what we say.

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