Whatever your financial situation, the lure of “guaranteed returns” and “once in a lifetime” investment opportunities may be hard to resist.
Indeed, as the cost of living crisis continues, you might be actively seeking additional income streams, making you vulnerable to offers that may be too good to be true.
Unfortunately, financial fraud poses a major threat in the UK. According to UK Finance, fraudsters stole over £570 million in the first half of 2024.
What’s more, criminals are using increasingly sophisticated techniques to try and trick you into handing over your money. So, even the most financially aware person could be caught out.
Thankfully, the London Metropolitan Police have published The Little Booklet of Investment Scams to help you spot the red flags.
Read on to learn about three of the most common investment scams and find out how to keep yourself – and your wealth – safe from criminals.
1. Pension scams – a too-good-to-be-true offer
Pension scams are one of the most common types of investment fraud. Figures published by Action Fraud, the UK’s national reporting centre for fraud and cybercrime, reveal that almost £18 million was lost to pension fraud in 2023, with an average loss of £46,959 per person.
Fraudsters targeting your pension savings might post adverts online, via social media, or they may even contact you directly out of the blue. Pension cold-calling is now illegal, so this is a major red flag.
Scammers typically make a too-good-to-be-true offer, such as guaranteeing a much better return than your current provider if you transfer some or all of your pension pot.
They may also claim that they can “liberate” your pension savings before you reach the normal minimum pension age of 55 (rising to 57 from 6 April 2028 for most people). However, this is not permitted under UK pension rules and promises of doing so usually signify criminal activity.
A common tactic used by criminals to convince you of their credibility is to offer a “free pension review” or state that they are authorised by a regulator such as the Financial Conduct Authority (FCA).
If you’re unfortunate enough to fall victim to pension fraud, the Met Police warn that your money could be placed in unusual, high-risk investments or stolen outright.
2. Ponzi schemes – promises of “guaranteed” returns
Ponzi schemes often appear extremely attractive as they usually offer high returns with little risk. In fact, the scammer is likely to suggest they can “guarantee” a healthy return on your investment.
In simple terms, a Ponzi scheme works by giving investors a return from the income generated by subsequent investors.
As a result, this type of scam requires a constant flow of money from new and existing investors. So, if you’re encouraged to invest additional money or invite your friends and family to get involved, this could be a red flag.
Criminals may try to convince you to part with your cash by claiming that they have a secret formula for success, perhaps even sharing testimonials from satisfied customers.
However, there is no special technique, and the fraudster is likely to disappear with the funds, once they have accumulated a significant pot.
3. Cryptocurrency scams – “get rich quick” investment opportunities
You may have seen adverts on social media featuring TV personalities who claim to have achieved impressive returns from cryptocurrency investments.
These adverts typically link to professional-looking and seemingly legitimate websites that encourage you to invest with the firm using cryptocurrencies and traditional currencies.
These get-rich-quick schemes usually require you to share your personal information, such as credit card details, to open a trading account and make an initial deposit.
The scammer is then likely to contact you and invite you to invest more money in exchange for a bigger profit.
Unfortunately, anyone can set up a website and it’s relatively easy to make one that looks convincingly professional. Criminals can also quickly deactivate a site. So, if you realise you’ve fallen for a cryptocurrency scam, you might have no way of tracking down your money.
How to protect yourself and your wealth from common investment scams
Unfortunately, this is not an exhaustive list of investment scams and criminals are devising new schemes all the time.
Yet helpfully, the Met Police have provided some practical tips for keeping yourself safe from investment scams, including:
- Check the status of a firm by looking them up on their regulator’s website or searching the FCA’s register of authorised firms and individuals.
- Avoid making any rushed or emotional financial decisions – scammers may use hard sell tactics such as telling you there is a strict deadline for their offer.
- Be cautious about unsolicited investment offers and reject any cold-calls regarding your pension savings (these are illegal and a likely sign of a scam).
- Thoroughly research any new opportunities and be wary of firms or individuals who avoid your questions or bombard you with confusing technical jargon.
- Be wary of promises of high returns that are “guaranteed”, “secured”, or “fixed”. If an offer sounds too good to be true, there’s a good chance it is.
- Seek independent financial advice before investing in any new opportunities.
Staying up to date with information about current scams and being vigilant could reduce the risk of a scammer taking advantage of you.
Get in touch
If you’re concerned about investment fraud, we can help you research any new opportunities you might be considering and support you in creating a portfolio that aligns with your financial goals.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Crypto assets are not regulated financial products so please be aware that trading them carries a considerable amount of risk for your capital. Cryptocurrencies are also not covered by existing consumer protection laws.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group 19/11/2024
