5 tell-tale signs of investment scams to watch out for

When investing, you always need to adopt some level of risk if you want your wealth to grow. Finding ways to manage that risk is one of the keys to successful investing, which is why taking a long-term approach and seeking professional advice could be beneficial.

It’s equally important to consider the risk of investment scams because Money Marketing reports that £2.6 billion has been stolen through investment fraud since 2020.

Investment scams can be incredibly convincing so you could fall victim to fraud, even if you are knowledgeable about financial planning. Fortunately, there are ways to spot a potentially deceptive investment.

Read on to learn more about the different types of scams and five tell-tale signs to help you spot a false investment opportunity.

Scammers use increasingly complex methods to fool investors

There are several different types of investment scams and criminals are constantly adapting their methods to fool investors.

These are some of the most common scams to watch out for:

Pump-and-dump schemes

The pump-and-dump scheme is an older investment scam that criminals may still use. Scammers contact investors telling them about an unmissable deal on a low-priced stock, promising that it will soon skyrocket in value.

Normally, the scammers already own a large amount of the stock and as they convince more people to invest, the price increases. Once the value of the stock reaches a peak, the scammers sell their investment for a high price and the stock price plummets again, leaving you with a worthless investment.

Boiler room scams

Scammers may set up a fake investment company with a makeshift office – known as a “boiler room” – and a professional website. They then contact potential victims, offering to invest their wealth for them. By the time you realise that the company isn’t real and you’ve lost your money, the scammers will likely have closed everything down and moved to a new location.

Advance fee schemes

Scammers may contact investors to tell them about an amazing investment opportunity that promises huge returns in a short space of time. However, to access this investment, you’ll need to pay an advance fee.

Typically, after making the payment, you’ll never hear from the scammer again.

Deepfake and Artificial Intelligence voice scams

The rise of Artificial Intelligence (AI) technology has given criminals more tools to create complex investment scams.

Perpetrators use “deepfakes” – realistic computer-generated videos of a person’s likeness – on social media to imitate celebrities or experts and encourage you to invest in scam products. AI software can realistically recreate voices too, so the videos can be very convincing.

Scammers recently created a deepfake featuring well-known personalities Martin Lewis and Elon Musk and shared it on Facebook. The video appeared to show Lewis and Musk encouraging viewers to put their money into a new investment product, promising huge returns. Yet, there was no investment and many people lost their money.

These are just some of the methods that criminals use to scam investors, and the perpetrators are always developing new ways to deceive people. Fortunately, there are certain identifiers that help you spot a potential scam.

5 tell-tale signs of an investment scam to look out for

1. Unsolicited contact

Unsolicited contact, whether on the phone, through email, or on social media, is often a sign of an investment scam. Pump-and-dump schemes, boiler room scams, and advance fee scams all involve somebody contacting you out of the blue and offering you an investment opportunity.

Legitimate investment companies don’t normally approach people in this way so it may be safer to ignore any unsolicited offers of investment advice as you don’t know who you are talking to.

Instead, when creating a portfolio, it may be beneficial to find a trustworthy professional to give you guidance about investments.

2. Pushy behaviour and time pressure

Scammers often use pushy behaviour and time pressure, telling you that you’ll miss out on an amazing opportunity if you don’t act now. By applying pressure, the scammers don’t allow you time to carefully consider the investment.

As such, you may want to be wary of anybody urging you to act quickly. It could also be useful to research investment products and seek professional guidance before making any decisions.

3. Unrealistic promises of high returns

Investing normally requires patience and a long-term approach but scammers may offer you a shortcut. They might tell you they can double your money in six months or offer guaranteed returns without any risks.

Remember that if something sounds too good to be true, it normally is, and these claims tend to be false. It may be better to stick to your financial plan and take a measured approach to investing, holding your investments in the long-term to potentially generate growth.

4. Recommendations from trusted figures

You may think that recommendations from so-called experts indicate that an investment is legitimate and offers the promised returns. However, new technologies such as deepfakes and AI voice generators mean that it’s incredibly difficult to know whether these recommendations are genuine or not.

Even if the recommendation is genuine, that person doesn’t know anything about your unique situation or goals, so the investment might not align with your own financial plan.

That’s why you may want to discount opinions from celebrities or public figures and seek guidance from a regulated financial planner instead.

5. Companies that aren’t registered with the Financial Conduct Authority

Most companies offering financial services must be registered or authorised by the Financial Conduct Authority (FCA). This gives you peace of mind that they are genuine and you’re less likely to fall victim to a scam.

You may want to check the financial services register and avoid dealing with any organisations that are not FCA-approved.

Get in touch

We can help you invest with confidence and work towards your long-term financial goals.

Please give us a call on 01276 855717 or email info@braywealth.com today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Approved by the Openwork Partnership on 07/05/2024