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Spotting investment scams: A guide for advisers

How to spot a scam and guide your business and clients through them

Financial scams are by their very nature hard to spot, especially as they become increasingly sophisticated. As financial advisers and accountants continue to digitalise their businesses and approaches to customer service, the potential for getting caught out is growing. 

While innovative new software solutions are making it easier to provide a faster and more responsive service to clients, advisers need to make sure they are staying up to date with evolving risks too. 

Financial scams are unfortunately something that we are all likely to experience at some point in our lives. Luckily with the right knowledge, and by always taking the proper precautions, most of us will be able to spot foul play before it has the chance to do any real damage. 

But scams are always evolving in line with the latest developments in technology, creating new risks for financial advisers and accountants as they continue along their path of digital transformation.  

Being able to spot financial scams is not essential for protecting clients. It is also an important part of maintaining your professional reputation as an expert and trusted adviser. As someone that handles a lot of sensitive financial and personal information, you are a prime target for fraudsters looking to expose weak points in digital infrastructures.  

Sharing knowledge and insights about evolving risks is a great way for the entire industry to become more robust. Let’s take a look at some of the most common financial scams and how to nip them in the bud.  

 

Types of financial scam  

One of the factors that makes financial scams hard to spot is the sheer variety of methods that can be used to gain access to personal or financial information. Here are some common kinds to look out for:  

Financial adviser scams  

Like you, the vast majority of financial advisers are skilled experts looking to help their clients achieve their personal and professional goals. Some, however, are definitely not, and it is important that you are able to identify them. Your clients may come into contact with these people, so you want to be able to advise them against going into business with them.  

Here are the most prominent financial adviser scams out there:  

  • Ponzi schemes – this kind of investment fraud involves people investing money in the hope of expected returns that never materialise. If your client mentions any new investments to you, make sure to ask them some follow up questions.  

  • Misrepresentation – a key tool in the scammer toolkit is using fake credentials to get people to hand over their money. Often members of the public won’t have a clear idea of the different kinds of qualifications out there. But you do.  

  • Unrealistic returns – if your client talks about the promised returns of an investment, this should immediately raise an eyebrow. Firstly, no return is ever guaranteed, and if the returns seem high, this could be evidence of foul play.  

Investment scams 

As a financial adviser, you are the first line of defence for your clients. Your independence is an important asset for your clients, and they should seek your guidance on any investment opportunities that become available to them. This is especially true when they have been approached out of the blue, as legitimate companies do not cold call people. Your first port of call should be to check the FCA website to see whether the company is listed as a regulated provider.    

Phishing  

We have all likely received scam personal emails asking us to transfer money to an offshore bank account, but it is increasingly common for scammers to target your professional email address too. Your clients may get a message that looks like it came from you requesting a payment, asking for bank details, or asking them to provide some other piece of personal information.  

It is essential that you make it clear to all your clients that you will never ask for any personal or financial information via email, and that they should call you as soon as possible if they think any messages are suspicious.  

 

Preparing your business  

The way that you interact with your clients and the digital tools you choose to use have a big effect on how protected you are from financial scams. As threats continue to evolve, your defences need to evolve too. This means getting up to speed with the world of cybersecurity, and making sure you are safeguarding your computer systems.  

A lot of scammers focus on exploiting vulnerabilities in digital infrastructures to gain access to information that can be used for fraudulent purposes. As someone that likely stores clients’ personal and financial information, you need to make sure your systems are as secure as possible. Here are some things to consider:  

  • Utilise a firewall and antivirus to protect your data and detect breaches early – there are free versions, but it is worth paying for the more advanced protection   

  • Consider storing your data on the cloud and trying to become as paperless as possible – it is effectively like outsourcing storage and security to a company that can dedicate millions of dollars each year to ensuring it remains safe  

  • Regularly update your passwords and check the permissions you have set up to your internal systems  

  • Consider investing in a client portal and use secure messaging for talking or transferring files to clients, to avoid doing so over email  

  • Set up an authentication process for client requests – it could be something like this: initial request from client via email, followed by a call to confirm, and then a message on the client portal to confirm  

 

Preparing your clients  

Engaged, informed and empowered clients are one of the most powerful tools against financial scams you have in your arsenal. It is, after all, your clients who are likely to be targeted by investment scams and phishing emails. If they are able to quickly identify and avoid risks themselves, without even needing to involve you, that is the best outcome for everyone.  

Here are some steps you could take:  

  • Include a brief introduction on how to spot scams in your introductory meeting, or send them some useful resources  

  • Encourage them to seek your advice on any investments they are interested in, or any other advisers they are interacting with  

  • Make sure they know that you will never ask them for any financial information through email, and that they should always check the email address of messages supposedly sent from you  

Unfortunately, it looks like financial scams will always be a risk for advisers. While they may not be going away, the industry is working together to deal with the issue and the way in which they are doing this is getting better every day. You can play your part by getting a better understanding of the risks you face, preparing your businesses, and helping your clients spot potential scams straight away.  

If you do spot something suspicious and you’re worried it’s a scam, make sure you inform Unbiased as soon as possible. We’ll take swift action to make sure every one of our professionals and potential clients are kept safe from those with malicious intent.

 

About the author
Kate Morgan
Kate Morgan
Kate has written for leading publications and blue chip companies over the last 20 years.

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