Avoiding financial fraud

Earlier this month, Panorama launched a documentary entitled ’The Great Pension Rip-Off’. The documentary was about the dangers posed by the Conservative’s recent pension freedoms, and as expected, there were the usual list of woeful stories from individuals who had been conned out of their hard-earned pensions by an unscrupulous company looking to make a quick buck and commit financial fraud.

As someone who reads a fair amount of personal finance related information on a weekly basis, I didn’t find the documentary too shocking, but it got me to thinking about how easily people can be conned out of their cash and fall for financial fraud. The company being reported on had a perfectly legitimate looking website, perfectly respectable ’advisors’ (who weren’t regulated, and so were called salespeople) and generally appeared to be a sound looking investment opportunity for individuals looking to maximise their pensionable income.

After receiving an unsolicited call from the company’s telesales team, an individual would be asked whether they were interested in receiving a free ’pension review’. If they agreed, they would be visited by one of the company’s salespeople, who would proceed to take them through some paperwork, and who would then return a few weeks later with their findings. They would then be presented with a number of investments, into which they could transfer their pension, with the goal of minimising the value of said pension, and thus their pensionable income.

This type of work falls squarely under the remit of financial advisors, but, with millions of pounds being up for grabs, a number of clever scammers have set up stall in the market, attempting to relieve hard-working men and women of their pensions through fraud. To the unwary, a fraudulent firm is almost impossible to detect, leading to hundreds of people being talked into putting their money in unsafe and unsuitable schemes which can underperform the general market, or even worse lose them the entire value of their pension.

Having read through more than my fair share of investment prospectuses and been cold called by more companies than I care to count, I thought I’d outline my process on how I go about avoiding financial scammers.

A huge red flag for me is the cold caller. Having worked hard for my money, I’m careful what I do with it, and will rigorously vet any potential investment before deciding to approach them to find out more. To be called out of the blue by a number which isn’t attached to company (a call centre or temporary number), by someone who I’ve never spoken to and whom I’ve never heard of is an immediate red flag to me – 9/10 of these companies won’t get past telling me what they’re calling about, and the remainder will be asked for their online presence so that I can vet them in my own time. I always tell them that if I’m interested, I’ll call back.

This brings me onto my next red flag – their online presence. Are they a registered company? Are they regulated by the FSA, or foreign equivalent? If I type in the company name on Google, what appears? How long have they been trading for? Do they have an active social media presence? Can I find employees on LinkedIn? Are their any reviews or descriptions of their service from customers?

An online presence which meets these criteria isn’t a guarantee of security, but it’s certainly a positive indicator. Today, companies can be set up with the click of a button, and shut down just as swiftly. Temporary phone numbers can be purchased, and sleek looking websites and social media accounts set up and populated in just a few days, with fake profiles and bank accounts created just as easily.

If the company passes these basic tests, I look at the kind of language they’re using on their website and on the phone; the tone of their voice, and their ’sales patter’ – is it aggressive? Reassuring? Professional? Do they listen to what I’m asking and answer my questions in a way that I understand, or are they looking to dismiss my queries and redirect my attention? As with many things, a good salesman will avoid all of the above, but if the call feels ’off’ to me, then again, I will terminate the engagement – I have plenty of investment opportunities which are open to me and which I can trust; I don’t need them, but they need me.

Read any collateral you receive with a fine tooth comb; do you understand exactly how the investment works? If not, keep asking questions and research until you do. Some investments are more complicated than others, but I genuinely believe that everyone should take the time to understand exactly what is happening with their money – if the company can’t explain what they’re doing with my cash, then I’ll walk away.

Finally, I take advice from a few personal, trusted sources. Depending on the type of investment I’m making, this might be as simple as speaking to a few friends, or as complex as ringing a lawyer or industry expert to run my understanding of the investment past them, and most importantly get an in-depth understanding of what could go wrong and how to prevent or mitigate losses.

I’ve come close to handing over money to companies who turned out not to be legitimate, and other investment have now been on my radar for more than a year before I’ve proceeded with them. At the end of the day, no one will take more care of your finances than you; many salespeople will tell you whatever you want to hear in order to close a deal, but if you aren’t satisfied and completely clear about what is happening, you never have to proceed. Never be afraid to shout wolf when it comes to potential incidents of financial fraud.

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