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Investment scams

How to spot a fraudulent investment scheme

Fraudsters are getting more sophisticated, particularly with investment scams. We explain how to spot scams and protect your finances.

What do I need to know first?

Fraudulent investment schemes often sound plausible and promise to be lucrative. But victims risk losing all the money they have invested.

Many of these scams are targeted at those in their 50s and 60s, after new rules introduced last year gave those over 55 greater access to their pension savings 1. These savers can now dip into their pensions — but this can make them a target for fraudsters, Citizens Advice has warned.


Scams are getting more convincing

Fraudsters often come up with new scams based on real stories that are reported in the news, which helps make their scams more convincing. This might be a scientific discovery or a company flotation on the stock market.

Scams also change and evolve all the time, and may purport to invest in a variety of different assets. Some piggyback on legitimate investment opportunities or government tax incentives.

For example, last year the Financial Conduct Authority (FCA) issued a renewed warning over carbon credit investment scams 2. Carbon credits are certificates or permits that represent the right to emit one tonne of carbon dioxide, and they can be traded for money. Fraudsters try to convince potential investors that carbon credits can be sold for a quick profit, but in reality they can be very difficult to trade or sell. The FCA has warned that no investors have actually reported making a profit.

The National Fraud Intelligence Bureau, meanwhile, warned that fraudsters were offering investors the opportunity to buy car parking spaces near major airports as a ‘sound pension investment’ offering a high rate of return 3. However, investors’ money never went near car parks. It was taken by the bogus firms running the schemes.

How to spot an investment scam

  1. Many investment scams cold-call customers or contact them out of the blue by text or email. Regulated and legitimate firms won’t fish for new customers this way. Ask the company to send further information in the post, so you have some facts and figures to check independently. If they are unwilling to do so, they’re likely to be fraudsters.
  2. If you get an unsolicited call or email, check whether the firm, or the investment scheme they’re selling, is one of a number of scams highlighted by the FCA. The FCA website lists the investments and companies it has serious concerns about. However, even if the firm or investment isn’t on the list, you should still remain vigilant as new scams emerge all the time.
  3. Always check whether the company that approached you is a regulated financial firm and don’t take the company’s word for it. Many may claim this in their marketing literature, or in their sales pitch, but check on the FCA’s list of regulated firms  to ensure it’s genuine. Remember that the company might claim to be working as an ‘introducer’ for another, authorised firm, but introducers must be authorised by the FCA too. If you hand over your money to an unregulated firm, and they subsequently vanish, you have no recourse to compensation – even if they promised to invest it with a legitimate business.
  4. Another common tactic is to insist that this offer is only available over the phone, or for a limited period. Take your time to review this, and never feel pressurised into signing on the dotted line.
  5. Be extremely suspicious of schemes that offer ‘guaranteed’ returns, even if these are relatively modest, or a return significantly higher than what could potentially be achieved from simply investing in the stock market.
  6. If you think the investment opportunity sounds as though it has potential, get independent financial advice first. Don’t let the company cold-calling you recommend an adviser. Seek out someone unconnected to the offer.

Remember that if you’re investing in an unregulated asset, without advice, you can’t lodge a complaint with the Financial Ombudsman Service if you later feel it wasn’t an appropriate investment for your circumstances.

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