The 7 signs of an investment scam

At a time of high inflation and meagre rewards for savers, there's a growing risk of having your head turned by the promise of high or guaranteed investment returns.

So-called investment schemes with an element of glamour or excitement, such as fine wine, cryptocurrency or holiday villas, can be particularly enticing to the unwary and inexperienced.

It's not always easy to tell the difference between a high-risk (but legitimate) scheme and an outright scam, and sometimes the truth only emerges years later.

Read on to find out about the red flags that should stop you in your tracks.

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1. Are they authorised?

When considering an investment firm or adviser, the first step is to check they're registered with the Financial Conduct Authority (FCA). You can do this by looking at its Financial Services Register.

Regulated firms and advisers must adhere to strict rules around mis-selling, and your money is protected up to a maximum of £85,000 per person if a regulated company goes out of business - thanks to the Financial Services Compensation Scheme (FSCS).

Most traditional investment firms dealing in stocks and shares must be registered with and authorised by the FCA. If a firm is carrying out regulated activities without authorisation, that's a major red flag and it's likely to be fraudulent.

More 'exotic' investments such as cryptocurrency, whiskey casks, property development and art are not regulated by the FCA, meaning there's no recourse if something goes wrong. They pose an extremely high risk and, while not always fraudulent, should be avoided by inexperienced investors.

2. Are you being pressured?

Is your investment 'adviser' putting you under huge time pressure? Have you been told you need to send money within hours or days or the 'deal' will vanish?

At best, this is a hugely unethical practice which puts huge stress on you and prevents you doing due diligence. At worst, it's a sign of an outright scam.

A firm or individual which employs this tactic is unprofessional in the extreme - don't pay them a penny.

3. Have you been asked to keep it quiet?

Fraudsters will attempt to isolate you from anyone who might cast doubt on their bogus claims.

They might ask you not to reveal the 'investment' to your partner or friends. This is an extreme red flag.

A respectable organisation would never mind you pausing the conversation to seek a second opinion and conduct further research.

When it comes to your hard-earned cash, take your time, do your homework and don't ever be rushed.

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4. Have they promised huge returns?

Investments are by their nature risky, and can go down as well as up. Your money is always at risk.

Any promotional brochures that promise returns in double figures, or imply that the scheme cannot fail, should be regarded with suspicion.

5. Did you get contacted out of the blue?

Ever received a cold call, email or text offering to boost your wealth? 

Ask yourself why a successful, professional firm would need to contact you out of the blue without your permission.

6. Did you follow a lead on social media?

Facebook, Instagram and other platforms are used by investment fraudsters to promote their schemes to huge numbers of people.

This can be through paid-for advertising but also takes the form of fake profiles which show a bogus millionaire lifestyle featuring expensive cars, holidays and designer clothing.

The fake profiles attempt to engage with victims by promising to share the 'secret' of their wealth.

7. Is there an element of romance involved?

So-called 'pig butchering' scams are a horrendous hybrid of romance and investment scams, which see victims tricked into believing they are in a romantic relationship.

The name is coined by fraudsters who 'fatten up' the victim with love and kindness before executing the investment part of the scam.

The first contact is typically made via a dating platform or in some cases via a text or instant message from a charming stranger who claims to have got the wrong number.

After weeks or even months of grooming and 'lovebombing' their victim, the fraudster claims to have had some success with investing - typically in cryptocurrency or property - before offering to invest some of the victim's funds.

When the scam becomes apparent, the victim has lost not only their money but also their new 'partner'.