Investment scams are becoming increasingly sophisticated, with many fraudsters using the cost of living crisis to persuade consumers to part with their cash in the hope of high returns.
Investment fraud is the fastest growing fraud category and given that large sums are often involved, one of the most harmful. In 2022-23, there were 23,900 reports of investment fraud to Action Fraud, the national reporting service for fraud and cybercrime, with a total reported losses of almost £750 million.
These scams frequently focus on more obscure investments such as carbon credits, diamonds and even Mongolian coal mines. But how can you spot a scam and what are the red flags to watch out for?
There’s no guaranteed way of making sure you don’t fall for a scam, but there are some warning signs to look out for.
Never invest in something you’ve been cold called about. Financial advisors selling so-called ‘regulated investments’, which means they are regulated by the Financial Conduct Authority (such as stocks and shares ISAs, pensions, shares and), are banned from cold calling potential customers. While some legitimate firms selling assets (such as wine) for investment purposes do cold call, any decision to invest should be taken in your own time and not because someone’s giving you the hard sell over the phone. Cold-calling about pensions has already been banned and the government is currently consulting about banning cold calling for all financial services and products.
The investment isn’t regulated
Many investments are regulated. That means that there are rules and regulations about the way they are sold and, if the financial advisor doesn’t abide by these rules, you may be able to make a claim for compensation on the grounds of mis-selling. Always ask any advisor selling you a financial product is regulated and, before you part with any money, ring the Financial Conduct Authority’s consumer helpline.
You’re encouraged not to talk about the investment
Some scammers tell their victims not to tell others about their investment. This is a classic scammer’s approach because they know that if you told someone else, you’d be advised to get out – and quick!
Investments scams to watch out for
There are certain investments you should be wary of, and the golden rule is that if an investment that looks too good to be true, it usually is. Here are some investments that you should always do plenty of research into before taking the plunge to make sure they’re legitimate. Even if you’re confident they are, you should only ever deal with firms that are regulated by the Financial Conduct Authority.
Carbon credits are a way for companies to buy or sell the right to emit a tonne of carbon dioxide. The idea behind carbon credits is a legitimate one, but a dubious industry has grown around it offering investors the chance to buy credits.
It can be difficult for individual investors to sell carbon credits, which means they may be worth very little. Because the Financial Conduct Authority (FCA) doesn’t regulate the sale of carbon credits, you can’t make a claim for mis-selling.
The Metropolitan police say they’ve seen an increase in the number of people getting in touch because they’ve been given the hard sell about investing in diamonds or gold. There is a legitimate market in gold – and other precious materials – but it’s also provided an opportunity for the scammers.
No matter how plausible an investment opportunity involving diamonds or gold sounds, don’t invest without doing some of your own research and talking to an independent expert. They will tell you if the scheme you’re being sold has any chance of making money.
Overseas forests and trees
Some scam victims have been cold called about investing in teak or bamboo forests, or given the hard sell at an event. There may be a legitimate market for these investments (but it’s not guaranteed), and because these investments aren’t regulated, they can say what they want about the returns.
Bear in mind that the further away you are from your investment, the harder it may be to monitor it. If you’re investing in a teak forest far away, you may have to rely on the salesman’s (or scammer’s) word.
Wine as an investment
Wine is a legitimate investment, but it’s also a market that’s seen its fair share of rogues. Over the years quite a few wine investment firms have come and gone – taking investors’ money and then going bust or being closed down before they’ve paid a return.
If you’re considering wine as an investment, find out how long the wine investment firm has been going for, where your wine will be stored and what others are saying about it. Type the firm’s name and the word ‘complaint’ into a search engine to see if other customers are happy. Be aware that in the early stages of an investment, investors may not realise there is a problem.
The Wine and Spirit Trade Association’s Investing in fine wines website includes prominent warnings about avoiding wine investment frauds and scams.
Never be pressured into making an investment of any kind, and if anyone is trying to rush you into making a decision, steer clear.
Contact your bank immediately if you think you’ve fallen for an investment scam. If you have been defrauded you must report it to Action Fraud either online or by calling 0300 123 2040.
You should also report what’s happened to the Financial Conduct Authority either online or by telephoning 0800 111 6768. Find out more about scams and how to avoid them in our guide Latest scams to watch out for in 2023.
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