How to spot a ponzi scheme

HEAVEN AND EARTH: EXTRAVAGANT PROMISES ARE RARELY TRUE

With just 6% of savers likely to have enough for retirement, it’s easy for panic to set in. And that is the moment ponzi practitioners are waiting for. So remember these points.

Anew year brings good financial intentions, but can you tell the difference between a great potential investment and the sales pitch? The South African Reserve Bank (Sarb) and the South African Banking Risk Information Centre (Sabric) recently warned consumers against an increase in fraudulent schemes.

Rising tide

The Sarb said that more than 5 000 advance-fee scams (tricksters who ask for advanced deposits) were reported over the last five years, while Sabric noted tricksters increase fraudulent activities over the holiday period with holiday home, credit card and phone scams.

Retirees are particularly vulnerable as they need to invest their life savings.

The problem also comes in when retirees realise that they may not have enough money to last throughout their retirement, and desperation sets in.

Only 6% of South Africans can afford to retire – 45% are dependent on their family, 32% are forced to continue working and 17% are dependent on the state pension. This is a sobering reality.

Bearing these figures in mind, it is a good idea to start saving for retirement as soon as you can. If you are nearing retirement and are uncertain if you have enough money to sustain yourself there are some practical steps you can take to improve your situation. These include delaying retirement and rethinking your priorities.

Regardless of your age, it is important to take a considered approach and not to be lured by false promises.

Beware of people or groups who guarantee a profit.

If you invest with a reputable investment house they should be transparent about the risk you are taking and the return you can expect.

Ponzi schemes, however, promise to make you quick wins, not on your own money, but rather on money put in by investors who join at a later stage. As it is very difficult to recoup losses for victims from ponzi schemes, it is important to be able to identify suspicious activity.

Be wary of the following:

Promises of high returns, which could not be achieved through normal conventional investment opportunities, within a short period;

Promises of “guaranteed” returns – make sure you understand who is making the guarantee and whether they can or will pay up. No return is ever really guaranteed. All investments carry some risk;

Attractive stories from other existing members of how much money they have made through the scheme; Opaque business models; Statements like “an opportunity of a lifetime”;

Lack of clarity around underlying investments;

Very high initial returns and encouragement to invest more; and

Unregistered products. Ensure you invest with a reputable firm or an experienced investment manager. Financial services firms are regulated by the Financial Services Board (FSB) and they can assist if you want to assess the authenticity of an offer or a provider.

Finally, you may wish to speak to an independent financial advisor.

Thandi Ngwane is head of strategic markets at Allan Gray.