How to avoid investment scams

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If you’re looking for an investment, you might be tempted by something like carbon credits, a wood or bamboo plantation, wine or diamonds. The problem is that while you may be able to make money from precious metals, wine or forests, there are also lots of rogues and fraudsters pushing these types of investments. Be aware that you could lose all your money.

Warning signs
There’s no guaranteed way of making sure you don’t fall for a scam, but there are some warning signs to look out for.

– Cold calling. Personally, I’d never invest in something where I was cold called. Financial advisers selling so-called ‘regulated investments’ — those where the way they are sold is regulated by the Financial Conduct Authority (such as stocks and shares ISAs, pensions, shares etc), are banned from cold calling potential customers.

SAVVY TIP: While some legitimate firms selling assets (such as wine) for investment purposes do cold call, I don’t think it’s something they should do. I think a decision to invest should be taken in your own time and not because someone’s giving you the hard sell over the phone.

– The investment isn’t regulated. Many investments are regulated. That means that there are rules and regulations about the way they are sold and, if the financial adviser doesn’t abide by these rules, you may be able to make a claim for compensation on the grounds of mis-selling.

SAVVY TIP: Ask the ‘adviser’ if the investment is regulated and, before you part with any money, ring the Financial Conduct Authority’s consumer line.

– Encouragement not to talk about the investment. Some scammers tell their victims not to tell others about their investment. This is a classic scammer’s approach because they know that if you told someone else, you’d be advised to get out — and quick!

Carbon credits
Carbon credits are a way for companies to buy or sell the right to emit a tonne of carbon dioxide. The idea behind carbon credits is a legitimate one, but a dubious industry has grown around it offering investors the chance to buy credits.

SAVVY TIP: It can be difficult for individual investors to sell carbon credits, which means they may be worth very little. Because the Financial Conduct Authority (FCA) doesn’t regulate the sale of carbon credits, you can’t make a claim for mis-selling. Read more about carbon credits on the FCA’s website.

Airport parking/car parking spaces
Earlier this week the National Fraud Intelligence Bureau warned that it’s seen a rise in the number of scams involving investing in car park spaces or airport parking. I’ve received two emails about airport parking in the last few weeks. The emails promise a ‘guaranteed return’ (normally for the first year or two). Unfortunately, this guarantee isn’t really worth the paper it’s written on. Some people are describing these ‘investments’ as being ideal for pensions.

Although it’s possible to earn an income from these investments, there’s been a big rise in the number of people being targeted with high pressure selling – never a good sign.

SAVVY TIP: You can read a warning about the rise in investment scams related to car parking spaces on Action Fraud’s website.

The Metropolitan police say they’ve seen an increase in the number of people getting in touch because they’ve been given the hard sell about investing in diamonds or gold. There is a legitimate market in gold — and other precious materials — but it’s also provided an opportunity for the scammers.

SAVVY TIP: As with other high risk ‘investments’, the salesman/woman will give you the hard sell on the phone. No matter how plausible it sounds, don’t invest without doing some of your own research and talking to an independent expert. They will tell you if the scheme you’re being sold has any chance of making money.

Overseas forests and trees
I’ve been emailed by people who’ve been cold called about investing in teak or bamboo forests or who’ve been given the hard sell at an event. There may be a legitimate market for these investments (but it’s not guaranteed), but the returns promised by these companies tend to be very high and, because these investments aren’t regulated, they can say what they want about the returns.

SAVVY TIP: Bear in mind that the further away you are from your investment, the harder it may be to monitor it. If you’re investing in a teak forest far away, you may have to rely on the salesman/woman’s word.

Wine as an investment
Wine is a legitimate investment, but it’s also a market that’s seen its fair share of rogues. Over the years quite a few wine investment firms have come and gone — taking investors’ money and then going bust or being closed down before they’ve paid a return.

SAVVY TIP: Find out how long the wine investment firm has been going for, where your wine will be stored and what others are saying about it. Type the firm’s name and the word ‘complaint’ into a search engine to see if other customers are happy. Be aware that in the early stages of an investment, investors may not realise there is a problem.

The Wine and Spirit Trade Association has a website that includes prominent warnings about avoiding wine investment frauds and scams.

Related articles:

It’s scam awareness month: 10 scams to avoid

Getting your money back if you’ve signed up for a ‘free’ trial

Don’t pay for something by bank transfer unless you know the company

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