Don't be fooled. If someone offers you a ‘foolproof’ financial scheme that ‘guarantees’ profits, here’s why you should be instantly wary.
By Donyale Harrison
Last year, Australians and New Zealanders lost a reported $31.3m and $10m respectively to scams, with investment scams promising fast profits at low or no risk. Many of the people targeted by cunning scammers were wealthy individuals who consider themselves savvy investors, and yet they still fell victim. One person is said to have lost more than $1 million to an investment scam before he finally reported the crime to the police.
Scams are successful because the people running them know just what tricks to use to build a sense of trust in their unsuspecting victims. This cunningness means even seasoned investors should not be complacent.
There’s no shame in making a mistake. NZ’s Commission for Financial Capability (CFFC) offers this advice: “If you have been victim to a scam, don’t be too hard on yourself. Scammers are experts at what they do and rely on people’s busy lives to distract them from the intent of their emails.” Scammers present a slick, professional appearance and often come with a raft of ‘documentation’ – quality websites and flyers, ‘reviews’ and a ‘history’ of successes. But there are ways you can spot an investment scammer. Look for these telltale signs.
They like to cold call
The vast majority of investment scams begin with a cold-call offer over the phone. Reputable financial services won’t initiate contact this way. While your bank may occasionally call you, it will always do so for a specific reason, and generally in response to your own attempts to contact them. According to Michael Baumann, General Manager, Everyday Banking and Payments, at the Commonwealth Bank, a bank will never call a customer out of the blue and seek confirmation of secure information. “We will never contact customers asking for their credit card number, card PIN, [online banking] password or code,” he says. “If customers opt to receive marketing material from their bank, we will send general information about a product or service, and invite them to read more on our website, visit a branch or get in touch with us. We won’t ask them to send us money or confidential personal information.”
If you are contacted over the phone by someone purporting to work for a major bank, financial services firm or even a telecommunications company, and you’re not sure whether or not it’s a scam, call back through the company’s main switchboard (not the number the caller gave you) to check that the person works for that company in the capacity they have alleged. Alternatively, a quick Google search of the company name or phone number and the word ‘scam’ can often bring up details about the latest scam doing the rounds.
You are targeted online
The internet provides scammers with a very sophisticated avenue for doing ‘business’. Using Facebook ads offering access to ‘unique opportunities’, ‘mate’s tips’ in online forums and even offers in unsolicited emails, scammers trick online users into thinking they are the one initiating contact, when in fact you are taking a very clever bait.
Remember, when you conduct any online research into companies you may wish to invest in, or look for financial advisers, be careful what links you open. Don’t fall for the unsolicited marketing that may clutter your screen with pop-up ads and offers – it could be a scammer.
"You can't lose. Don't delay."
Any reputable investment adviser will tell you that you can lose. While some options are safer than others, nothing is guaranteed. A reliable adviser will recommend you spread your risk across several types of investment, whereas scammers will often encourage you to focus on just one, or declare that their portfolio is ‘risk-free’.
Investment scammers push their ‘products’ by building a sense of urgency and exclusivity. Look out for claims of ‘limited opportunity’. This approach is particularly true of investments promoted at ‘wealth creation’ seminars, where investors are urged to sign on the dotted line right there and then. This removes any chance of seeking independent advice or time to consider whether the investment is worth the valuation given, or if the charges are reasonable. Some investment scams have actual items of worth as part of the scam, but ask you to pay in more than you would receive as your part of the company’s assets if the scheme was wound up. Never commit to any investment without obtaining independent legal or financial advice first.
They won't stop
Reputable firms take no for an answer. They may follow up an initial contact from you with one or two offers, but a request to stop contact will be honoured. Scammers will sometimes take a hard ‘no’ reply, but just as often a ‘more senior’ staff member will come back to you with more information as to why you should invest with them.
What can you do?
In NZ if you receive a scam by text message, simply forward it to 7726 SPAM, and officers at the Department of Internal Affairs will investigate. In AU you can also report scams to ACCC’s Scamwatch at www.scamwatch.gov.au/report-a-scam.
Baumann says, “Customers should always check that the person they are talking to is who they say they are. Ask them for their credentials, ABN or the number of the Australian Financial Services Licence they operate under.”
If at any point the conversation seems uncomfortable, feel free to say no. Scammers will often create a sense of urgency. They may try to test your better judgement by claiming that something needs your immediate attention.
“Education is key,” says Baumann. “Read up on what to look out for, so you don’t fall for it. Scamwatch is a good source of information. The CommBank website also has tips and advice for customers on how to stay safe online at www.commbank.com. au/personal/support/security.html.”
Greet all unsolicited investment suggestions with an enormous amount of scepticism. The old adage ‘if something seems too good to be true, it probably is’ definitely applies when it comes to investing.
Other games they play
While investment scams can take many guises, here are a few that were used over the past year.
BINARY OPTIONS TRADING This highrisk form of trading bets on whether a stock or commodity price will go up or down. If you (or the trading signals software most real brokers use) predict correctly, you profit. If you’re wrong, you’ll lose your entire outlay. While it’s legal in AU and NZ, many reputable investors steer away from binary options because of that risk. Scammers encourage this style of trading by emphasising the quick returns and their ‘extremely accurate’ software. They ask people to open an account (which has an establishment fee) and then to ‘invest’ for big returns. But when investors want to withdraw their ‘winnings’, they hit a brick wall – they are told there was a sudden loss and are encouraged to invest more, or the people they are dealing with simply disappear.
CRYPTOCURRENCIES (BITCOIN) As Bitcoin’s price surged from roughly US$900 to US$20,000 in the second half of 2017, so did the number of scams offering people a chance to ‘invest’ in the cryptocurrency. Popularised by Facebook ads and in online forums, the scams asked people to invest in ‘clubs’ that would band together to purchase Bitcoin and reap the benefits of the cryptocurrency’s spectacular climb in value. But those who did invest found their money went into bogus accounts and was lost.
OFFERS TO BUY YOUR SHARES This type of scam is very elegant as it often appears legitimate. Scammers target people who are genuine shareholders and use official-looking letterheads with names that sound like the company you have invested in to initiate a share ‘buyback’. Usually you will even be paid, but the amount will either be much lower than your shares’ worth or the payments are spread over a long period of time. If you feel an offer to buy shares might be legitimate, make sure you first check the company’s listing on the stock exchange for its current value and recent shares performance.