FOLLOWING your questions from last week’s column on the multiple investment scams we seem to be facing at the moment, I thought I would follow on with ‘others to keep your eye on’.
Since the introduction of new more liberal pension rules, 53 per cent of pension pots accessed have been fully withdrawn. There is enough bait there for the unscrupulous. In 2016 during a three-month period, one in three people aged over 55 were targeted by pension scams.
It’s worth remembering these two key points which drive 250 people a day to be scammed: the fear of losing out (FOLO); and confirmation bias – believing something, and looking for the evidence to support it.
Other common scams I couldn’t cover last week come under the ‘pump and dump’ scheme used by the “Wolf of Wall Street”.
In this example, you might be sent a glittering list which includes, 100 shares that have performed extremely well over the last one to five years, and with that will come another list you could consider.
What you mightn’t see is that the so-called expert writing about them is actually being paid to boost them. (In the small print). The column is written in a way that looks as though it’s objective, but had actually concluded the outcome in advance, and looked for the data to prove it.
By the time you buy the share, the market is actually trying to dump it, and hey presto, ‘who would have thought that?’ says the broker who will have made money shorting it (betting on its downside).
These pump and dump shares are often sold as having had past ‘great performance’ but recently taken a ‘little setback’.
Consider that any share is not cheap just because it has fallen, and just because it rises slightly afterwards doesn’t mean that isn’t a dead cat bouncing. Don’t get anchored to a previous price. If it can get cheap, it can get a whole lot cheaper.
Remember a stock that has fallen 99 per cent, can fall 99 per cent the next day too, and 99 per cent every day thereafter, for a very long time, sucking in investors to a black hole of loss.
Pub or armchair financial experts have rarely a thing to say about their losses, and much to say about their ‘gains’. Another caveat emptor.
You aren’t on your own if you are scammed, as many major institutions have also been on the receiving end of the wrong treatment. Two of the Silicon Valley’s brightest (Google and Facebook) confirmed they were a victim of a hacker who created fake invoices and email accounts, which they paid, to the hacker, to the tune of as much as $100 million.
Most investors are embarrassed by having the wool pulled over their eyes and let these scams go. The upheaval of dealing with a skeleton company with no assets that is likely to be based abroad, can’t be tracked down, and won’t respond to your court’s orders, is a long and expensive mistake to swallow.
Some of the less obvious ‘scams’ involve smaller amounts of money but for more people. At £5 or £10, the hassle is too much, so people leave it.
They could of course be tester payments on your credit card to see if they can get away with it, before hitting you with a bigger bill, so be vigilant to such payments.
Another is the ‘scam’ of the great free introductory offer that you forget, before a one-off annual payment pays out a month later, after you had given over your financial details, thinking you would cancel within the allotted time frame.
Whilst the FCA regulates most funds and you are afforded considerable protection if things go wrong, unwary investors are not fully aware what represents a regulated product. Unregulated products like hedge funds, and collective schemes like wind farms, forestry, film production and foreign property, offer no protection to the investor.
Those caught by the recent wind farm scheme will know full well how the complexity of the company structure and complex prospectus can dupe investors. ‘Too good to be true’ at 9 per cent per year income didn’t prompt anyone to check if there was even any planning permission granted on what they were aiming to do.
Take the time out to run any investment past a suitably qualified adviser, and as I learned to my cost in certain classroom situations, there are no stupid questions.
:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a question on your investments call Darren McKeever on 028 6863 2692, email info@wwfp.net or visit www.wwfp.net.
