Investment scams and how to avoid them

Watch out for boiler room schemes

"I have had clients in the past who have been affected and many have been tricked by boiler rooms with overseas jurisdiction. They use cold calling, as now everyone’s details are held on databases, and are quite insistent with the hard sale."

"Clients have been led to believe they are investing in a company that is traded on US indices, when no company even existed. One of my clients even sent £5k over. If one person falls for it for every 100 calls they make, it makes it worth it for them."

"Most of my clients are now well versed in what to do. They should say: ‘If this is so great, speak to my adviser.’ Whether something is a scam or not, they need to carry out due-diligence on every investment decision they make, which they can’t do with a single phone call. No matter how good something sounds, always take a step back." Chris Wise, director of IFA Budge and Co


Avoid cold calls

"I was approached five years ago, not by a boiler room, but by someone trying to sell me a covered option in currency. They gave me this spiel of why the euro was only going to go up and how the dollar was going to go the other way, and said 'Would you like to make £30,000?', to which I replied 'I’m not sure'."

"I knew almost as soon as I picked up the phone there was something rotten about the deal, but I stayed on the line just to see what tactics they were going to use. I agreed to let their supervisor call me back and when he did, I explained straight away that I work in this industry and wasn’t going to get fooled by this sort of thing."

"I wouldn’t recommend anyone does what I did and sit on the phone with these guys as they’ve got ways of making you do things you probably didn’t want to get involved with. The most ridiculous thing was, if it was a foolproof way to make £30,000, why were they ringing me?"

"There are a number of tell-tale signs that something is a scam. If it is a cold call; if the sale is aggressive and pushy and wants to turn you around quickly; if they try to stop you discussing it with someone else; and if they try to take money off you without getting to know you or using due-diligence."

"They tend to target the more vulnerable cross-section of investors. They used to target women, but now they go for men, as what they ‘offer’ tends to appeal to those with big egos, and many male investors have a desire to appear clever in the way they make their money." Adrian Lowcock, senior investment adviser, Bestinvest


Beware of churning

"I had a really sad situation this week. I have been referred a client who said she was happy with her existing IFA (a national-tied financial advisory firm). They advised my client to cash in three of her existing investment bonds, causing her to pay additional tax, before reinvesting the funds back into bonds to earn themselves £10,000 commission in the process."

"Perfectly legal, but as far as I am concerned it was greed personified. It’s not overt scams that are the problem of our industry, but simple greed."

"The FSA are bringing in the Retail Distribution Review with a view to banning commission. It’s a shame that they have had to go as far as they have, but when the practice of ‘churning’ for commission’s sake is still widely practiced, I can see why the FSA have acted the way they have."

"I am conscious that every day I come into the office I have to decide to act with integrity. My simple belief is, if you put the client first then they stay with you, they refer others to you, and my business stays robust…and I can sleep at night." Chris Spear, managing director, Spear Financial


Anyone can fall for it

"It is worth remembering Madoff’s Ponzi scheme took in some very high rollers and very skillful people. My one piece of advice is, if something sounds too good to be true then it probably is."

"There is a thin dividing line between a scam and ineptitude. I think the Keydata thing was probably down to ineptitude, while the Arch Cru thing was definitely a scam – they used shell companies [a company that exists but does not actually do any business or have any assets] and concocted a system that invests in things that wouldn’t be approved. Both the regulator and the administrator Capita were caught napping on that one."

"If you get an email from someone claiming they’ve got $25m waiting for you, it’s obviously a scam and if anyone falls for that one, they need to go and speak to their psychiatrist." Harry Katz, director of Norwest Consultants