How to avoid in­vest­ment fraud­sters Be­fore en­ter­ing into any type of in­vest­ment agree­ment, you need to be ab­so­lutely cer­tain of its le­git­i­macy.

Finweek English Edition - - MARKET PLACE - Editorial@fin­week.co.za is a port­fo­lio man­ager at PSG Wealth.

na­turen­ever ceases to amaze me. A few years ago dur­ing win­ter, our Border Col­lie passed a lit­tle too close to our heater at home and, out of sheer cu­rios­ity about this heat-emit­ting won­der, walked away with a burnt snout. To this day, she avoids the heater by a few me­ters, even when it’s switched off, be­cause she has learnt from her mis­take.

In the last decade names like Fi­den­tia, Her­man Pre­to­rius, Lead­er­guard, King Group and Share­max haven’t only been syn­ony­mous with fraud, but have also been re­spon­si­ble for the loss of mil­lions in hard­earned money. Stu­dents were forced to give up their stud­ies; re­tire­ment was post­poned (in­def­i­nitely, for some); and peace of mind was de­stroyed. Even suicides were named as one of the hor­rid con­se­quences for the vic­tims of these fraud­sters.

Un­for­tu­nately, it seems as though many South Africans tend to for­get such events too quickly and they of­ten walk into the ex­act same trap again when promised quick and easy re­turns over the short term by de­cep­tive in­di­vid­u­als. Even when they know that it sounds too good to be true, the prom­ise of a brighter fu­ture seems too good to re­sist and, un­like our Border Col­lie who learnt her les­son, they run the risk of burn­ing their snouts yet again.

My aim this week isn’t to turn back time or to de­ter­mine who should be blamed for what, but rather to tell you as an in­vestor how you can avoid these traps by learn­ing from your own mis­takes, as well as from the mis­takes of others. I of­fer you five ques­tions you should ask your­self be­fore en­ter­ing into any type of in­vest­ment agree­ment in fu­ture:

1. Is this com­pany ap­proved by the Fi­nan­cial Ser­vices Board (FSB)? 2. What do I know about this com­pany’s his­tory?

Do proper re­search on the com­pany and fa­mil­iarise your­self with its man­age­ment and the way it func­tions. Con­tact ref­er­ences or make use of the in­ter­net to de­ter­mine if any­one has ever been mis­led by the com­pany or any of its ad­vis­ers. If the pro­posed scheme or in­vest­ment seems sim­i­lar to a pre­vi­ous fraud­u­lent scam, walk away. It’s sim­ply not worth the risk.

3. How much am I in­vest­ing and how much will I earn?

Be wary of prom­ises of high re­turns over a short pe­riod of time. Chances are it’s ei­ther a scam or in­volves some­thing il­le­gal. Al­ways re­mem­ber the old say­ing: If it sounds too good to be true, it most prob­a­bly is.

4. When will I get my earn­ings? 5. How will I earn it?

En­sure that you know ex­actly how your money will be in­vested. If you don’t un­der­stand the process and your ad­viser can­not ex­plain it to you in a clear and con­cise man­ner, be care­ful. Re­mem­ber, it is your money and you need to un­der­stand how it will be in­vested. Do not hes­i­tate to re­ject a pro­posal or to re­quest an al­ter­na­tive in­vest­ment pro­posal if you feel un­com­fort­able with any as­pect in­volved in it.

Al­ways use good judge­ment when mak­ing choices that can af­fect your fu­ture. Don’t let a tes­ti­mo­nial by some im­por­tant or fa­mous per­son be the de­cid­ing fac­tor in why you choose a par­tic­u­lar in­vest­ment com­pany.

Do proper re­search on the com­pany and fa­mil­iarise your­self with its man­age­ment and the way they func­tion.

In con­clu­sion, I rec­om­mend that in­vestors al­ways seek the ad­vice of a recog­nised, FSB-ap­proved fi­nan­cial ad­viser be­fore mak­ing any big in­vest­ment de­ci­sion. I know that ex­tra ad­viser fee may seem like a waste of money, but these ad­vis­ers are ex­perts in their re­spec­tive fields and they pos­sess the abil­ity to iden­tify and pre­vent mis­takes. Learn from the mis­takes peo­ple have made in the past and re­mem­ber: the choice is al­ways yours.

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