How to avoid investment scams

As savers contend with record low saving rates, many may be looking to investments as a way of boosting the return they get on their savings. Although investments are usually a risker option than most saving accounts, now investors are also having to face the possibility of not only losing their capital through poor investments but also through investment fraud.

Indeed, according to a report from Action Fraud, more than £78m has been lost though investment fraud during 2020, with victims losing £45,242 each on average. April 2020 alone saw a 29% increase in reported investment scams as the Coronavirus pandemic’s impact on the economy began making consumers worried about their finances.

A common method of defrauding investors is through cloned firms, where the fraudsters use the name, address and ‘Firm Reference Number’ (FRN) of genuine companies authorised by the Financial Conduct Authority (FCA) to con investors into transferring funds to the scammers.
The fraudsters can engage their potential victims through a number of channels. For example, the scammers will place adverts on social media platforms and search engines that encourage consumers to click through to a replica website of a genuine company – some may even clone the website domain name.

Another tactic used by fraudsters is calling potential investors who have put their contact details into genuine comparison websites. The scammers will pretend to be from well-known, legitimate investment firms or send sales materials linking to websites of legitimate firms.

To fool potential victims further, the returns being promised are often slightly better than the market rate, but still modest so that they do not arouse suspicion. It can be months after transferring funds to the fraudsters that victims realise they have been scammed.

“Clone investment scams are sophisticated and extremely difficult to spot. Last year, we received over 3,767 reports of clone scams to our consumer helpline,” explained Mark Steward, executive director of Enforcement and Market Oversight at the FCA. “Fraudsters use literature and websites that mirror those of legitimate firms, as well as encouraging investors to check the FRN on the FCA Register to sound as convincing as possible.

“If you’re considering an investment, visit the FCA Register to make sure the firm you’re dealing with is authorised. Use the contact details on our FCA Register, not the details the firm gives you, and check for subtle differences to avoid ‘clone firm’ scams. And if you’re still unsure, call our consumer helpline for further information. When it comes to clones, I cannot emphasise enough how important it is to double-check every detail.”

The FCA also advises consumers to never give out their bank account or credit card details unless they are certain of who they are dealing with this. If the consumer has given out this information, they are advised to tell their bank immediately. In addition to this, the FCA advises:

• To treat all unsolicited calls, emails and texts with caution.
• Do not rush into acting quickly – a genuine organisation will not mind waiting to allow time to think.
• Ensure that bank accounts and credit card statements are checked regularly.

In addition to this, consumers should be wary of click-on ads on the google results page, or on other websites and instead only click on trusted links on genuine websites. For example, at Moneyfacts.co.uk, we ensure all our links send consumer through to genuine companies.

For more information about the types of scams criminals are carrying out and how to remain protected from them, read our story on the rise of finance scams since the start of the pandemic. For those considering equity release, read our story on how to avoid equity release scams.