The average amount of money victims lose to an investment scam is £5,887, Which? research has found.
When it comes to investing, risk and reward go hand in hand. And with savings rates failing to beat inflation, it may be tempting to take a chance on something racier to get a better return. But there are unseen risks to watch out for: scams.
When we surveyed 5,200 Which? members, one in 10 of those who said they’d been exposed to any sort of scam told us they’d come into contact with investment scams. And of those who responded to an investment scam, half (52%) fell victim – losing a staggering £5,887 each on average.
If you have any questions or concerns about an investment you are about to make, call our experts on the Which? Money Helpline to discuss.
The scam: A carbon credit is a generic term used for certificates or permits allowing carbon dioxide (CO2) emissions. When sold to a casual investor, they’re very unlikely to be able to sell or trade them.
How it works: Salespeople cold call investors, although contact can also come by email, post or at a seminar. You may be offered carbon credit certificates, voluntary emission reductions (VERs), certified emission reductions (CERs) or an opportunity to invest in ‘green’ schemes/projects that generate carbon credits as a return on your investment. The Financial Conduct Authority (FCA) says an increasing number of firms are using dubious, high-pressure sales tactics.
Why it’s a scam: Claims are made that carbon credits are ‘certified’, but this isn’t recognised by any UK compensation scheme. Projects generating carbon credits are usually based overseas, and authorities here can’t control their quality or validity. Crucially, there isn’t a viable secondary market for ordinary investors to sell or trade. The FCA doesn’t regulate carbon credits, so if things go wrong, you won’t be able to access the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS).
How to invest legitimately: Trading carbon credits requires skill, understanding and experience, so seek independent advice before handing over money. It’s possible to invest in regulated funds, which place your money into the shares of companies that do good for the environment.
Boiler room scams
The scam: Bogus stockbrokers offer to buy or sell shares with the promise of big returns – only for victims to discover shares are worthless or non-existent.
How it works: Scammers, often based in ‘boiler rooms’ abroad, cold-call novice and experienced investors after taking phone numbers from public shareholder lists. But people can be targeted by other means. Using high-pressure sales techniques, professional-sounding stockbrokers may offer free research reports into a company you hold shares in, a gift or discount on dealing charges, or ‘secret’ stock tips. You’ll be pressured into quick decisions.
Why it’s a scam: The FCA regulates stockbrokers in the UK, and authorised firms are unlikely to cold call you. Offers to buy shares you already own at well above market value will be bogus.
How to invest legitimately: Check whether a company is authorised at www.fca.org.uk/register. If it’s not, don’t invest. Use a registered company instead.
Investing in fine wine
The scam: Investors are talked into buying bottles, cases or barrels of ‘fine wine’ that are either overpriced or don’t exist.
How it works: Brochures are sent out, and callers promise ‘guaranteed profits’ and ‘fast returns’, while using high-pressure sales tactics.
Why it’s a scam: This type of investment activity should only be promoted to sophisticated investors with a lot of money to invest. Some scammers may have just a small amount of stock, while others don’t have any at all. Some have been known to try passing off cheap plonk as fine wine.
How to invest legitimately: Although the Wine Investment Association (WIA) kitemark can help point you towards approved merchants, membership of the scheme won’t provide you with any formal protection, or give you access to the FOS or FSCS, as the industry isn’t regulated. Potential investors should thoroughly research a firm’s history and expertise using Companies House. Rigorously check wine prices as well as details and costs for storage, insurance, commission, deliveries and documentation. Make sure you can value your wine independently.
The scam: Investors are sold diamonds that are either overpriced or don’t exist.
How it works: Cold callers encourage investors to part with thousands of pounds by insisting diamonds, especially coloured ones, will provide attractive returns.
Why it’s a scam: Diamonds bought could be overvalued. One member’s elderly father invested more than £56,000 in three diamonds only to find they were actually collectively worth £20,000. And some fraudsters may advise investing even more money in larger stones that don’t exist.
How to invest legitimately: The diamond trade is an unregulated market that’s hard to understand – even seasoned experts can disagree on a diamond’s value – while you’ll need to consider other costs such as VAT, storage and insurance. Seek independent or legal advice before committing to any investment of this sort.