5 ways to protect yourself from investment scams

The average victim of investment fraud loses £20,000, adding up to a whopping £1.2billion each year in the UK. The criminals behind this form of theft are clever, and constantly adapt their scams to snare new victims. But there are some steps you can take to spot and avoid a scam.


How investment scams work

Investment scams typically start with an unsolicited phone call, letter or email promising incredible returns for your outlay. The money they're after could be your life savings or even your pension, making the potential losses considerable.

These scams are often very sophisticated. The fraudsters may direct you to a polished and professional-looking website or send you a brochure, complete with testimonials from other investors and a wealth of information on past performance. They may mimic genuine firm's websites or literature, which are designed to con you into taking them at their word.


How to identify an investment scam

Fraudsters make their living out of scams, and they are very good at their job. But there are some ways to spot an investment scam. Alarm bells should start to ring if you encounter any of the following five key giveaways:


1. Cold calls

Fraudsters need to get in contact with you somehow, and phoning is a popular method as they often catch you off-guard. The caller will be very experienced at extracting money out of victims, and may make repeated calls or try to keep you on the phone in the hope of wearing you down.

They might also claim they are just following up a brochure or email they sent. Whether this is true or not, the safest thing to do is hang up.


2. Incredible opportunity

Fraudsters will want to impress you with information on the huge returns you'll be in line for if you buy into the investment. If you're impressed with their mouth-watering proposition take care, the old adage "if something seems too good to be true it probably is" definitely applies here. The chances are the investment doesn't exist, is very high risk—which should be pointed out to you—or wouldn't return anything like the promised returns.


3. Risk, what risk?

All investments come with a degree of risk, but you'd expect a scheme that purports to offer very high returns to be particularly risky. If a caller plays down the risks, perhaps claiming that your initial investment is protected and you only risk losing any growth, they're probably trying to con you. Likewise if they try to blind you with science, use legal or financial jargon, you should be suspicious.


4. Immediate decisions

Fraudsters will press you to send money to them as soon as possible. The last thing they want you to do is have any time to reflect, speak to friends or family and get cold feet. This is why they may tell you the deal is open for a very short time, only being made available to you and that you shouldn't tell anyone about it.


5. They are not on the list

You should never make a snap decision about investing, and be sure about the company if you are tempted. The Financial Conduct Authority has a Warning List, which you can use to check whether the firm is suspicious.


Types of investments scams

There are numerous types of investment scams to be aware of, but some are more common than others. The most prevalent is share fraud, also known as boiler room scams. These see a fraudster offering the chance to invest in shares that are promoted as offering amazing returns, but are actually either non-existent or virtually worthless. The crooks will ask you to wire them money, which you never see again.

Recovery fraud is another common scam, which sees the criminal offer to recover an existing investment for a fee, which you would need to pay up front. Again, any money you wire over will disappear.

Other scams involve offering you tremendous opportunities to grow your money by investing in fine wines, currencies and carbon credits, among others. In all cases, you'll be asked to send money to secure your non-existent investment.

For more information visit the Money Advice Service's beginners guide to scams.


All information accurate at time of publication

This article is provided by the Money Advice Service.

Money Advice Service