The dirty dozen: 12 early warning signs an investment is a scam


HiRes 150pxHardly a week goes by without the financial press reporting another huge fine for a bank, an investment that has failed, or a ruling by the Financial Ombudsman Service in favour of an investor.

So how do you spot a scam? What are the tell-tale signs? How can you avoid losing your life savings?

Here are the dirty dozen, 12 early warning signs to look out for:

#1: Cold callers and unsolicited texts

Receiving an unsolicited call or text message, which offers you an investment opportunity or a “free pension review” (more of which in a moment) is often the first sign that an investment could be a scam.

If you need financial advice go to a UK regulated and authorised Independent Financial Adviser (IFA), who you should ideally find through a recommendation; don’t use someone who has cold called you.

#2: Too many people in the chain

Generally cold callers work for marketing firms, who then passes your details to an unregulated sales person who then tries to sell you an investment. Sometimes a regulated financial adviser is involved too, especially when pensions are being discussed.

That’s three or four companies which need to be paid. Where’s that money coming from? Directly from your investment; the greater number of people in the chain, the more the costs will mount up.

#3: Guaranteed high returns

The offer of high guaranteed returns, might sound attractive but is in fact one of the most important early warning signs that an investment is a scam.

A guaranteed investment, such as a UK bank account and National Savings, will offer relatively low returns. It’s just a fact of life; guarantees equal lower returns. So if you’re offered guaranteed returns significantly above those of a savings account we’d suggest you treat the offer with a huge amount of skepticism.

#4: “Free” reviews

We are cold called almost every week by marketing firms offering a “free pension review”.

A free review of your pension might sound attractive but what’s in it for them? As part of the “free pension review” process, the cold callers will try and sell you an investment, or get you to transfer your pension. A percentage of people will of course sign up and the salesperson will get paid a commission.

There are very few free things in this world; a high quality pension review, from an independent and unbiased adviser, isn’t one of them.

#5: Unregulated sales people

Taking financial advice from an unregulated salesperson is frankly asking for trouble.

To start with you will be giving up much of the protection offered to investors by the Financial Conduct Authority (FCA), the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS).

It’s also unlikely that the unregulated salesperson will have Professional Indemnity Insurance or be as well qualified as a regulated adviser.

If you really want to consider making unregulated investments, then at least use a regulated Independent Financial Adviser to do so; anything else is just asking for trouble.

You can check whether an individual is authorised by the FCA by clicking here .

#6: Unfounded claims about your existing pension

Many of the companies offering “free pension reviews” start out by making unfounded claims about your existing pension. We’ve heard spurious claims about poor performance, high charges and exit penalties, which can’t possibly be substantiated without a detailed analysis of the pension in question.

These claims are of course part of the tactics used to scare you into a “free pension review”, ignore them and speak to a qualified and regulated IFA if you are concerned about your pension.

#7: Overseas property investments

Not every overseas investment is a scam, but we’ve seen many people lose large amounts of money investing in overseas property deals.

These are often, although not always, investments into holiday accommodation. They generally promise high guaranteed returns, sometimes even tempting you with offers of free holidays.

Despite the slick patter from the salesperson, any investment into overseas property is high risk and almost impossible to do sufficient due diligence on, in the same way you would do if you were buying property in the UK.

#8: Unlisted or obscure shares

The number of scams involving shares is on the rise.

Such scams are often complex and hard to understand. As a general rule, investors should be very wary of buying any shares which are offered to them as a result of a cold call, an unsolicited approach or where the claims made by the person selling them are just too good to be true.

#9: High pressure sales tactics

We’ve all experienced high pressure sales tactics, perhaps when buying double glazing or a second hand car, the practice appears to be creeping in to parts of financial services.

If anyone puts pressure on you to make a financial decision, or gives you a “special offer” for a limited period of time, take a step back and ask yourself why.

No reputable financial adviser would put pressure on you to make a decision.

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#10: No mention of commissions or charges

UK registered financial advisers must disclose all charges, commissions and fees; no such rule exists for unregulated investments and advisers.

If you find it hard to discover exactly what you are being charged for an investment, or the person selling it won’t disclose their fee or commission, this is another warning sign that you should take your business elsewhere.

#11: Approved investments

Despite what a salesperson might tell you, neither the Financial Conduct Authority (FCA) nor Her Majesty’s Revenue & Customs (HMRC) approve investments.

If anyone claims that the investment they are selling is approved by the FCA or HMRC walk away, it’s a sure fire sign they are desperate to sell you something which is probably not in your best interests to buy.

Look out for the words “SIPP approved” too. There’s no such thing, it is yet another sign that a salesperson is trying to give credibility to an otherwise dubious investment.

#12: If it sounds too good to be true…

Last, but by no means least, investors should use simple common sense; if an investment sounds too good to be true, then it probably is.

If you are in any doubt about an investment, pay to get a second opinion from a qualified, experienced and regulated Independent Financial Adviser. Paying for a few hours of their time could save you a lot of money and heartache in the future.

We want to hear from you

If you have been the unfortunate victim of a financial scam we want to hear from you; the lessons you have learned could help other investors.

Call us on 0115 933 8433 and ask to speak to Phillip Bray.