Seven signs an investment is too good to be true


When you invest, you naturally want it to grow as much as possible. However, the latest figures from the Financial Conduct Authority (FCA) show people are being sucked into scams in the hopes of achieving exceptional returns. In 2018 alone, investment scams cost victims £197 million in reported losses.

The FCA noted fraudsters were increasingly using sophisticated tactics to encourage victims to invest and taking advantage of digital technology. While cold calling has been a traditional way for criminals to establish contact with potential victims, their focus has been shifting to opportunities online. Of the people that checked the FCA Warning List following suspicious contact, 54% had been targeted via online sources, such as social media channels and emails.

Three key investment areas have been identified as being used by fraudsters to draw victims in. 85% of all suspected investment scams involve one of the following:

  • Shares and bonds
  • Forex
  • Cryptocurrencies

The average victim lost £29,000, a sum that could have a huge impact on financial security and plans. As the end of the tax year approaches, the coming months are a peak time for fraudsters to target victims with money to invest, due to investors looking to invest before the start of 2019/20.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said: “The first quarter is a common time for people to make their financial plans for the year, including investments. But before you invest do your homework. Always check the FCA’s register to make sure you’re dealing with an authorised firm and use the contact details on our register, not the details the firm gives you, to avoid ‘clones’. Also, check the FCA Warning List of firms to avoid. Remember, if in any doubt, don’t invest!”

How to spot an investment scam

With criminals using sophisticated tactics, it can be challenging to spot a scam. However, there are some red flags that could alert you:

1. Unexpected contact: One of the clearest signs of a scam is being contacted out of the blue. It used to be that fraudsters would try to communicate through cold calls. Now, you’re just as likely to receive an unexpected email, social media post or even be approached in person. Be cautious of all unsolicited contact and ask how they’ve obtained your details.

2. Pressure to make a decision: Choosing to invest is a big decision, it could have a significant impact on your financial wellbeing. Genuine investment professionals know this and will give you the time needed to make an investment decision. Criminals are more likely to pressure you into making a choice quickly, for example, by citing it’s a limited time opportunity or a discount.

3. Offers of unrealistic returns or guarantees: First, all investments come with an element of risk; there’s no way to guarantee returns. Secondly, if an investment opportunity sounds too good to be true, it probably is. If you’re being promised returns that are better than anywhere else, ask yourself why others aren’t seizing the chance to invest too.

4. Investment opportunities that are complicated or unusual: Investments can seem complicated and fraudsters use this to their advantage. If the proposition seems complex and confusing, ask questions to gain an understanding. An investment professional will be willing to explain how the investment works before you decide. It’s important you understand the profile of all your investments.

5. Absent from the FCA Register: As mentioned above, the FCA Register is a key place to look to establish whether someone or a firm is regulated. If you have a suspicion that you’re being targeted, the FCA Warning List could also provide you with further details. Remember, just because a firm isn’t mentioned on the Warning List it doesn’t mean it’s a genuine opportunity, new scams happen all the time. Checking with the FCA is simple and could save you thousands of pounds.

6. Flattering communication: Criminals will want to lull you into a false sense of security, seeking to quickly build up trust. Flattery and attempts to build a personal relationship can indicate that all isn’t as it seems with the investment opportunity. This one can be hard to spot, as genuine firms and investment professionals will seek to build up a rapport with clients too.

7. Establishing authority: Again, this one can be difficult to notice. While in the past, scammers could be identified by a lack of social proof, they’ve become increasingly savvy. Often successful scammers will now have professional looking websites, online reviews and convincing documents to help them establish authority.

As financial planners, we’re here to offer you advice on investments too. Whether you want to see if you’re getting the most out of your investments or have questions around an investment proposition you’ve received, please contact us.