Be smart about investing
New pension freedoms and low interest rates mean your wealth is an attractive target for investment scams, says Bob Hair
Thousands of investors are duped by sophisticated scams every year and on average they lose £32,000 each, according to research for the Financial Conduct Authority (FCA).
The problem is increasing because new pension freedoms have left many older people with a pot of money to invest, and low interest rates mean it is hard to grow savings in a bank account.
The FCA’S Scamsmart campaign was launched to help investors fight back against the fraudsters, who often call out of the blue offering investment opportunities with high returns if their victim makes an immediate decision.
In addition to information, Scamsmart includes an interactive tool, called the FCA Warning List, which helps investors find out more about the risks associated with an investment, and a checklist of firms known to be operating without FCA authorisation.
While many seasoned investors believe they would easily spot the warning signs, the research found that it was often the financially savvy who fell victim.
A true figure for the huge amount of money being lost may never be known because many victims are often too embarrassed to come forward.
Although they carefully do their research for other big costs, many people do little-to-none when it comes to investments.
For example, the research shows that 47 per cent said they did extensive analysis before agreeing to pay for building work while only 38 per cent did the same for investments – and yet the average cost of major building work was £25,000, compared to £36,000 for investments.
This makes some people easy prey for scammers who may downplay the risk of investing, flatter their victims by praising their knowledge, or say that other clients have already invested or want in on the deal.
Mark Steward, director of enforcement at the FCA, says: “Making a significant financial investment is an important decision – be prudent, do your homework and be especially on guard if contacted out of the blue by someone you don’t know.
“Fraudsters are targeting the growing over-55 population because they are more likely to have money to invest. They may pressure you to make a quick decision or try to make you feel stupid for not taking up their bogus offers.”
“No investment decision should be rushed. Be sceptical. Be suspicious. Ask questions and get answers you can verify.
“And remember, if you receive an unsolicited call about an investment opportunity that sounds too good to be true, then it probably is. The best thing to do is hang up.”
The FCA’S research found that a fifth (22 per cent) of over 55s and a third (32 per cent) of over 75s believed they had been targeted by an investment scam in the previous three years.
More than half (55 per cent) of those who invested in financial products did so on their own, without consulting their families – more than any other major financial decision, such as buying a house, a car or a major holiday.
When investors did try to research a proposed opportunity the most common method was to look at the company’s website. However, many fraudulent firms are known to create highly professional looking sites, going to great lengths to appear genuine.
Some use the identities of reputable firms, perhaps changing the name just slightly.
Those surveyed were more aware of some signs of investment fraud than others.
For example, 92 per cent agreed that being contacted out of the blue could be a warning sign but 19 per cent were unaware that being promised returns above the current market rate could also be a tactic.
Nick Hewer, presenter of the TV game show Countdown, is supporting the Scamsmart campaign. He says: “Duped by cold-callers, fake websites and online adverts, I am outraged at the persistent threat investment scams pose to society, especially those over 55 who are the prime target for these callous criminals.”
“I have been targeted by these scammers myself so I’m not surprised to see how many other people have also been approached. The amount of money that is being lost by scam victims is extremely worrying, which makes it all the more important that this issue is tackled.”
“If you are contacted by someone offering an investment out of the blue, just put the phone down.
“The FCA Warning List is a fantastic resource for those who are unsure about an investment offer – in a nutshell, check, check and check again.”
A particularly callous aspect of the scams is that victims are sometimes duped twice.
Having lost their savings, another scammer will contact them claiming to be from a company who can trace the money and return it to them, if they pay a fee. This money also quickly disappears.
The FCA is charged with protecting consumers from scams. It takes enforcement action in the UK and is working with police forces overseas to identify fraudsters based outside of the country.
The scale of the problem is huge, however, and investors need to be vigilant and take sensible steps to protect themselves. n Nothing in this article should be deemed to constitute the provision of financial, investment or other professional advice in any way. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.