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How to identify an investment scam

By Athenkosi Sawutana

Many people invest a lot of money for their future and that of their offspring. Unfortunately, some of them never reap the benefits because the investments were scams. Luckily, there are ways you can find out if an investment opportunity is too good to be true.

JustMoney spoke to an industry expert about the tell-tale signs of investment fraud.

Tip: Don’t be fooled by scammers. Let us connect you with a trusted fund manager by clicking here.

According to Lyndwill Clarke, head of education from the Financial Sector Conduct Authority (FSCA), there are various signs that the investment opportunity you’ve been offered should not be trusted.

High returns in a short period

The general rule of any investment is that the higher the investment, the higher the returns. If the fund manager promises you high returns with low risk, you must open your eyes, ask more questions and investigate. If the flyer says: “double your money overnight or within a week” or “20% and more return on your money” that’s a big red flag, don’t fall for it.

Time-limited offer

The scammers want to get hold of your money fast, so that they can scam someone else. They will make you think that they’re offering you some kind of bargain that will expire in a short period. However, that’s a scam that’s meant to make you organise money fast and give it to them. If you see the phrases “The offer is only valid for today” or “for the next few days” - run for your life.

Testimonials

The scammers will have people “testifying” on how much money they made from their investments. These are normally people who are also in on the scam. They work together to make you believe the investment is legitimate and profitable. Don’t believe what they say. Speak to a qualified and trusted financial adviser for the best investment options.

Recruitment of members

If the investment “company” asks you to recruit more people, you should refuse. These are normally pyramid schemes, which are illegal. Money is raised by recruiting people into the scheme rather than buying or selling any product. The more people each person recruits into the scheme, the more money is made by everyone who joined the scheme earlier.

READ MORE: Banking fraud: How to protect yourself

Clarke provided these tips to avoid being scammed.

  • Be vigilant.
  • Ensure that you only deal with authorised financial services providers. These are the companies and persons licensed by the FSCA to sell a specific product(s) or service(s).
  • Do not make a quick decision. First do your research on the company or person.
  • Check with the FSCA if the company is authorised to sell that product.

If you suspect you’re being lured into an investment scam, call the police or the National Consumer Protectorate.

A unit trust is a legitimate way you can ensure your money grows over time. Take some time to learn more about it. You can also fill in this form to be connected to an adviser who can assist you.

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