When the scheme is a scam: Top tips to protect your money against fraud

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The over-55s have typically been the primary victims of scammers, who hope to cheat people out of their life savings (Source: Getty)

As we see a rise in people investing online, fraudsters are changing the way they con people out of money.

Worryingly, £87,000 is being lost to investment scams every single day, according to figures published by the UK’s financial watchdog last week.

The Financial Conduct Authority (FCA) urged people to be vigilant when signing up to investment schemes, particularly online. Contracts for difference, forex trading, and cryptocurrencies were all named by the FCA as markets to be particularly cautious of, largely because these types of investments are frequently promoted online and through social media channels.

The over-55s have typically been the primary victims of scammers, who hope to cheat people out of their life savings. But data indicates that the rise in online investment platforms means younger people are increasingly being targeted.

On the surface, these investment scams can look extremely attractive from a return point of view. But the FCA warns that dodgy schemes can lock people in with extreme pay-out clauses, and even shut down customer accounts – refusing to pay back their money.

Here are a number of ways to help protect yourself from this threat.

Only deal with regulated companies

Your first line of defence is make sure the company you are dealing with is regulated, which you can check on the FCA website.

You are far less likely to be at risk of a scam if you only deal with regulated financial advisers or wealth managers who are promoting regulated investments.

Even if something does go wrong, using the services of authorised companies means you have extra protection from the ombudsman, or the Financial Services Compensation Scheme if the business you are dealing with fails.

Hang up on cold-callers

If proposed legislation is given the green light, we should see a blanket ban on cold-callers before 2020. But in the meantime, it’s important to be cautious about nuisance calls.

According to figures from insurance giant Aviva, 2.7m more cold calls were made last year compared to 2014, as scammers hoped to take advantage of the pension freedoms by conning people out of their savings.

The FCA is blunt about cold callers, and launched its ScamSmart campaign back in 2014 to help tackle this issue. Presenter and former adviser to Lord Sugar, Nick Hewer, fronts the campaign after being subjected to unsolicited calls himself.

He says you should “be suspicious” of attractive investments offered out of the blue, and recommends that you simply put the phone down if the call is unwarranted.

Cold-callers can be very pushy, and even persuasive, so don’t give scammers any time to tempt you into their trap.

Don’t be bullied by your adviser

Svenja Keller, head of wealth planning from Killik & Co, says she has come across many examples of so-called “advice” that could well have been a scam.

On one occasion, she says a new client had been persuaded by their previous adviser to move £700,000 to an investment scheme, which was later shut down by HMRC – but not before the adviser had taken commission of six per cent upfront. The client never recovered his losses.

You shouldn’t engage with any adviser before thoroughly checking their credentials, Keller says, adding: “don’t be bullied into a course of action that makes you feel uncomfortable or that you don’t fully understand.”

Seek another opinion

According to figures from Killik & Co, more than half of us invest without consulting anyone else first, including family members.

Despite this, only 42 per cent of us are confident that we could spot a financial scam.

Keller says this suggests that we are easier targets than we might think for sophisticated scammers.

With this in mind, it’s always important to get a second opinion from a trusted source.

Make sure you keep your family in the loop too – they might be able to spot bad signs and act as a backstop if anything gets out of hand.

Don’t be fooled by above-market promises

While dodgy schemes can entice people to invest by promising high returns, the FCA warns that scams will often distort prices on their website.

In the investment world, you often hear the phrase: “if it sounds too good to be true, then it probably is”.

If you are promised the investment of a lifetime, Royal London’s personal finance specialist Helen Morrissey emphasises that you should take the time to look at the scheme more carefully. “If you are offered something that promises high or guaranteed returns, then be wary.”

Even if the returns are merely above average, make sure you understand why this is the case, so you know what you’re getting yourself into.

Don’t feel time-pressured

You should never feel rushed when making a decision about where to invest your hard-earned money. You should invest for the long term, and it’s therefore not a decision that should be taken lightly.

“If you are put under pressure to make a quick decision, then beware,” says Morrissey, pointing out that a regulated financial adviser would never expect you to rush a decision without thinking through all the implications.

“If you are being put under pressure then don’t be scared to break off contact with the person you are dealing with. That could be something as simple as ending an online conversation, or even putting the phone down on someone. Don’t be scared of being seen to be rude – you are protecting yourself and your money.”

Do your research

While fraudsters can use websites that look very professional, it’s still important to some research if you are looking at transferring your money into any investment scheme. Again this could involve checking the FCA website to see if the company you’re dealing with is registered.

The watchdog has also produced a list of investment opportunities that should set alarm bells ringing, including overseas property, land banks, carbon credits, graphene, rare earth metals, binary options (where you are paid all or nothing), and illiquid securities that offer get-rich-quick returns. The warning list also allows you to check an investment that is unfamiliar, or which might be too good to be true.

It’s frightening to think that the average amount lost to a scam is £32,000. Morrissey says no one is immune from investment scams, and she points out that these cons can evolve quickly as scammers find more innovative ways of targeting people.

While there is no cure to eradicate these scams, we can take preventive measures to ensure our money doesn’t get into the wrong hands.