How to spot and protect yourself from investment scams

Financial scams are at record highs. Here’s how to know the signs and protect yourself from a scammer.

The number of investors duped by fraudsters into handing over money for fictional investments skyrocketed by nearly a third (32%) last year, new figures reveal. In a bombshell report on financial fraud in the UK, trade body UK Finance reveals nearly 9,000 victims lost more than £135 million to investment scams last year. Not only are investment scams an increasing problem, but also, they can be devastating for the victims. According to Action Fraud, the UK’s fraud reporting service, victims of investment fraud lose more than £45,000 each on average.

Below we set out what investment scams are and how you can avoid falling for them.

What is an investment scam?

An investment scam is where a fraudster tricks a victim into transferring them money to pay for an investment opportunity that doesn’t exist. Typically, scammers try to persuade you to invest in property, fine wine, crypto currencies or any other asset, usually with the promise of sky-high returns. Once the victim makes a transfer, the scammers run off with the cash and the victim never hears from them again.

How do they trick people out of their money?

Fraudsters use incredibly sophisticated and elaborate methods in order to trick investors out of their cash. To seem legitimate, scammers often steal the identities of genuine, reputable companies, which is known as ‘cloning’. That way, victims think they are dealing with the genuine firm. Criminals tend to target their victims by cold calling and using high-pressure sales tactics to persuade them to part with their cash. Crooks also use a technique called ‘spoofing’ during phone calls which makes the number they are dialing from seem genuine – as if it were from your bank – when it isn’t. It’s also not unusual to see scammers use social media, email or even letters to hook their victims. In most cases, the crooks will try to force the victim into action by claiming there is only a small window to invest before the opportunity disappears.

How to avoid becoming a victim

  •  Reject unsolicited approaches

 The most effective way to guard yourself against investment scams is to avoid all unsolicited calls and emails encouraging you to invest your money. Put simply, if you get a call out of the blue, hang up; and if someone emails you, delete it and don’t click on any of the links.

  • Do some digging

If you are approached by a firm you are familiar with – say, your ISA or pension provider – check it is really them before parting with your cash. For example, you can call their customer service line to find out if the offer is legitimate. However, if you are emailed an offer, don’t call the number in that email – it might be fake. Search for the number instead on the company’s website.

  • Use ScamSmart

If you think an investment or pension opportunity could be a scam, use the Financial Conduct Authority’s ScamSmart test. After just a few short questions, the test will tell you whether or not you’re at risk of being defrauded.

  • Report it

If you think you’ve spotted a scam, report it so others don’t fall for it. You can do that by calling Action Fraud on 0300 123 2040 or by using its online reporting tool.