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Don’t be a victim of investment fraud

Don’t be a victim of investment fraud

Category: Investments

Updated: 25/05/2016
First Published: 25/05/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Low savings rates have led many of us to desperately scour the market in hopes of finding a deal that will pay more than the lacklustre interest offered via traditional accounts. However, this search for a decent return means that more and more savers are being tempted by unfamiliar investments, which could open them up to investment fraud - and it seems that over-55s are most at risk.

Turning to the unfamiliar

Research carried out by industry regulator the Financial Conduct Authority (FCA) as part of its ScamSmart campaign found that a large number of over-55s are turning to investments to get their money working harder - of those questioned, 41% had moved money out of traditional savings accounts such as fixed rate bonds and ISAs and put it into investments. Another 23% also stated that they were considering putting their money in unfamiliar types of investments in the future.

This is not, per se, a bad thing, as investments do have the potential to generate higher returns - albeit with higher risks - but what is causing concern is that 26% of those questioned said that they had put their money into unregulated investment products. Of these, 48% did not seek financial advice beforehand, and nor did they consult information such as the FCA's Warning List. Even more worryingly, 13% of those questioned who have invested in unregulated products were unaware that their money would not be protected by the Financial Ombudsman Service or the Financial Services Compensation Scheme.

This is certainly something to be concerned about, especially as investors in these types of product are pouring in money regularly, with 22% of unregulated investment holders stating that they have invested more money over the last year than ever before.

Unsolicited calls

Another concern is that the number of unsolicited investment calls is on the rise, and with it is an increased risk of investment in unregulated firms. Indeed, 32% of retirees questioned in the research said that they had been contacted by a firm offering investments over the last 12 months. These calls were also found to be persistent, with 37% being contacted up to three times.

Some of these calls may be from legitimate companies, but sadly there is also evidence attesting to the opposite: of those who have experienced investment fraud, the FCA found that 47% made their investment following unsolicited contact.

Be smart

If you want to reap the potential benefits of investment, but steer clear of investment fraud, then it is important to be on your guard and do your research. Make sure you ask questions for, as Mark Steward of the FCA points out, "you don't need to be gullible to lose money to a scam or fraud. Fraudsters target financially sophisticated people, too, who often don't like to ask what might sound like silly or basic questions".

It's also a good idea to abide by the rule of 'if it sounds too good to be true, then it probably is'.

If you're interested in investing, check things such as the FCA's Warning List and preferably also talk to an independent financial adviser. By gathering all the information you can and getting advice, you can then be sure that you are aware of all the risks and benefits of investment and are unlikely to be the unfortunate victim of fraud.

What next?

Comfortable with risk? Then check out stocks & shares ISAs

Find out more by reading our investment guides

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.