Your front line of defence against investment fraud

From hunting down a suspected fraudster in person to just watching your back, financial advisers have shown their worth in fighting pension and investment crime. Here are some of the ways in which professional advice can be your ultimate insurance against getting conned. Article by Nick Green.

If you ever doubted how far a financial adviser would go to look after their clients’ best interests, then you haven’t heard of Neil Liversidge, Yorkshire’s answer to Batman. The managing director of West Riding Personal Financial Solutions succeeded in foiling a suspected fraudster, to the extent of setting up his own sting operation when the relevant authorities were slow to act. The suspect, who allegedly was attempting to steal from the pension of a retired headteacher, was eventually arrested by plainclothes police after Neil himself lured the suspect to his office.

Police arrested a 49 year old woman and enquiries are ongoing, but this incident shows how vigilantly financial advisers will watch over their clients’ best interests. This is one of the less obvious benefits of having a financial adviser, yet potentially the most valuable of all – they can serve as your financial bodyguard. Increasingly this kind of protection is not just for the rich, since pension freedom has given people an unprecedented degree of access to large sums of money that need protecting.

Always on the alert for fraud

Fraud is constantly evolving. As new circumstances arise (such as pension freedom) criminals hunt for cracks and loopholes to exploit, and if people get wise to one kind of scam, the criminals think up a new one. Financial advisers, being on the front line, are among the best placed to spot a potential fraud before anyone else does.

A possible example occurred recently on MoneyFlex, the free Unbiased Q&A service. A persuasive request came in, apparently from an advice firm in Canada, asking for a UK adviser to sign off urgently on a pension transfer for their client. It may have been a genuine enquiry, but the Unbiased adviser who responded (Alan Chan) did not let his guard down. He insisted that the client had to be present in person and concluded, ‘A typical pension scam looks exactly the same as you’ve described it.’ (The enquirer then went silent.)

Like a guard dog who barks before you hear the footsteps, a financial adviser can detect potential threat in apparently innocent behaviours. This is due partly to their technical knowledge and partly to simple experience. Conversely, it is hard for the lay person to maintain the necessary knowledge and vigilance to avoid being caught out.

Why investment fraud is on the rise

Among the biggest dangers today are so-called ‘investment opportunities’ that are either entirely fraudulent or too high-risk for ordinary savers to contemplate. These have proliferated due to low interest rates and sluggish equity markets, both of which offer thin pickings for anyone hoping to make their money grow. This makes it easier for fraudsters to attract victims.

A recent study by the Financial Conduct Authority (FCA) found that people over 55 are particularly at risk – not because they are more gullible, but because they have access to their pensions.  As many as 4 in 10 of this age group have started to show riskier financial behaviour, such as moving from cash savings into non-cash investments, in order to seek better returns. (Traditionally, it is better to reduce investment risk as one gets older.)

The study also found that more than a quarter were choosing to invest in unregulated products, including land, wine (learn more about how to invest in wine here) and art. But 13 per cent did not know that such products were unregulated, or that this meant they would receive no protection or compensation if things went wrong.

Investments don’t need to be fraudulent to be potentially disastrous. All it takes is for the investor to have insufficient knowledge of the risks involved. The person or company offering the investment may downplay the risks to get you on board, but in the end, ‘buyer beware’ very much applies. Only an independent financial adviser is guaranteed to act in your best interests.

Too shrewd to be fooled by a pension scam?

Investment fraud has overtaken ‘pension unlocking’ as the most common type of scam. Now that people can access their pension from the age of 55, many people then where best to keep the money. So fraudsters position themselves to offer solutions, contacting individuals to offer attractive-sounding opportunities. Many of these are highly convincing, and appeal to those who consider themselves savvy and sophisticated investors.

If the rewards of fraud are high, then expect the fraudsters to invest a lot of money and effort in making their offer look genuine. A convincing website is no guarantee – it is relatively simple to build a professional-looking website and copy materials from genuine sites, as the bogus advice site Launton Wealth did. A fraudster (under the guise of being a respect company called Launton Wealth) conned a senior member of the British Police Force out of £150,000 of her mother’s inheritance money. Ironically, the victim sought out this site online after deciding a genuine financial adviser’s fee was too high for her purposes. Being a senior police officer, she may also have assumed she would never fall for a deception.

The FCA’s director of enforcement, Mark Steward, advises, ‘Be suspicious. Ask questions. Check the FCA ScamSmart website, the FCA warning list and the FCA register to see if those who are asking for your money are the real deal.’

Another rule of thumb is to ignore (or preferably report) any unsolicited contact, as genuine advisers have no need to cold-call. Another warning sign is when a supposed adviser says they will be paid through commission on your investment. Real advisers don’t do this anymore, as all fees now have to be transparent – but the fraudster may count on you not knowing that. Finally, if it looks too good to be true (e.g. extremely high interest rates and/or promises of ‘zero risk’) then it probably is.

Don’t have nightmares - seek advice instead

Financial advice isn’t just about what you want to achieve with your money; it’s also about preventing the things that you don’t want to happen. The threat of fraud should not deter you from seeking genuine opportunities or taking measured, calculated risks with your money. Having a financial adviser at your side means you can venture out into the world of investments with confidence – knowing that a professional has your back.