Increasing financial pressure and economic hardship have left many of us wondering how we’re going to make ends meet. Unfortunately, this also tends to put us at greater risk of falling prey to financial predators.
This is according to Fiona Teeling, regional general manager at Momentum, representing in Bedfordview and Edenvale. “Scammers feed on current and pressing needs during times of economic hardship, claiming high returns, offering guarantees when there are higher levels of uncertainty and volatility, or promising too-good-to-be-true tax-efficient investments to attract investors,” she said.
ALSO READ: How to use Bitcoin safely
Using social engineering tactics, scammers draw would-be investors into schemes by appealing to their sense of trust or hope. “The most common investment scams are Ponzi or pyramid schemes. Fraudsters infiltrate a community using a trusted financial adviser – who themselves have been lured in by the exuberant commission structures – to win over potential investors.”
“As the adage goes: if it [sounds] too good to be true, it probably is,” she said. Teeling explains that although scammers may present a good case for joining their investment using attractive statistics, would-be investors should approach any investment opportunity promising high returns with caution.
ALSO READ: Can you still get good healthcare for your child without medical aid?
“The risk with investment schemes of this nature is that they cannot deliver on their promise of high returns. The money you invest may even be used for something completely different to what you were led to believe, which could result in you losing the full initial investment.”
Teeling added, “In most cases the money you ‘invest’ is used to generate returns for earlier investors, depending on your ranking in the scheme. Once the number of existing members outweighs the number of new members joining the scheme collapses, and all the money is lost.”
ALSO READ: Medical breakthroughs help those suffering with gastroparesis
Like any service that promises results that are too good to be true, there are always indicators that should make you want to ask more questions. Teeling highlights three red flags that will help consumers to avoid being misled.
- Lack of transparency
Ensure that you have all the details in writing and that there is paperwork you can refer to. Find out how the investment generates returns. “For example, a property investment cannot offer an outside investor ‘double the returns’, especially in the short-term. If you don’t understand how the money is generated, then this is a tell-tale warning sign that something is amiss.”
- Terminology and time pressure
“If you hear or see the words ‘act now’, warning bells should start to ring. You need to do your research and exercise due diligence with any investment – and any financial adviser worthy of the title will encourage you to do this. You cannot make a fully informed decision in a matter of minutes or even hours, and if you are pressed to respond immediately, rather do not opt-in.”
- Third-party payments
Teeling highlighted that no reputable investment house will ever ask you to make a payment to a third party without explicit reference to the investor as the beneficial owner. She explained that if the investment product is not registered or offered by an authorised financial services provider, you can assume that it is not a trustworthy or genuine investment opportunity.
“As a potential investor, the onus lies on you to do your homework. Do not take opinions or information at face value – never trust someone blindly, not even family. Request a reference, ask for a second opinion, and don’t ever feel that someone is rushing you to reach a decision.”
ALSO READ: Frequently asked questions about HIV/AIDS in South Africa
Teeling concluded, “When in doubt, consult a financial adviser from an accredited financial services provider such as Momentum, who will be able to assist you with your money-related questions.”
