In nearly all of the frauds that we read about, greed is the underlying lure that attracts investment dollars.
Below we provide some of the commonalities between the various scams to watch out for to help ensure you don’t get lured in.
Bank affiliated
One consistent marketing tool that we hear often is non-bank affiliated firms using a negative approach toward bank-owned firms. Nearly all the frauds that we have read about are done through independent companies that are non-bank affiliated.
From a fraud-prevention standpoint, we feel strongly that individuals are better protected by dealing with large financial institutions that have been in existence for centuries and have cybersecurity and fraud management departments with a strong oversight. We also feel that larger financial institutions have a reputation to protect.
Promises of returns
One of the most common scams involves individuals or firms promising high investment returns that are guaranteed, with little to no risk.
These types of promises are an immediate red flag: If it sounds too good to be true, then it likely is.
All investments have some level of risk. Risk and return often go hand in hand, meaning the higher the potential return, the higher the potential risk. This promise of returns is often combined with other tactics that try to get you excited about the opportunity.
Time is of the essence
Many individuals who promote investment scams will apply some sort of pressure. The pressure usually has to do with timing. They may use phrases like: “Now is the time to get in,” or: “This investment opportunity won’t be around for long.”
The idea is to get you in quick and not give you time to do your due diligence. They may also pressure you to invest just a small amount to begin with, then come back looking for a larger amount using the same tactics.
Overly complicated
One common characteristic of potential investment scams is an overly complicated investment that is hard to understand.
If you have trouble understanding the potential investment, then it is impossible for you to understand the potential risks or downsides to the investment.
One way to avoid this is by keeping things simple. And one way to do that is by investing in good quality, publicly traded companies that trade on one of the major exchanges.
Publicly traded companies are required to regularly disclose financial information to the public that allows investors to make informed decisions.
Exclusivity
Some investments are promoted as being exclusive and only available to a select few. Other claims include that an investment opportunity is based on “inside” or confidential information.
Some of these opportunities might invite you to make an investment through what appears to be a legitimate website or app or require you to use “crypto” assets to purchase the investment. This is a big red flag and likely not a legitimate investment opportunity.
Vague on details
Fraudulent investment opportunities have many things in common, one of them being that these opportunities are vague when it comes to the details.
Often the person trying to sell you the investment will avoid answering specific questions or use diversionary tactics to avoid going into any detail. Another tactic is the use of technical jargon to confuse potential investors.
Legitimate investment opportunities should come with clear and detailed information about the opportunity, financial information and the risks involved.
Crypto investments
One of the top investment scams over the past few years involves cryptocurrencies and digital assets. There are a few different terms used to market “crypto” assets — like digital assets, cryptocurrencies, coins and tokens.
Many of the scams involving cryptocurrencies involve a seemingly credible person or business who will request cryptocurrency for payment, but not accept other forms of payment.
Some will also use combinations of the above-mentioned traps such as promising high returns, pressuring you to act quick, promoting exclusivity, and being vague on details.
Registration
Many of the frauds that we read about happen with individuals or firms that are not registered or licensed to offer what they are claiming to have.
Searching for the individual or investment firm online is one quick way to get more information. Investors can use the Canadian Securities Administrators’ national registration search tool at to confirm if an individual or firm is registered in their province and under which registration they fall under.
If the firm or individual that you are thinking about investing with is not registered where they say they are, that is another potential red flag.
Kevin Greenard CPA CA FMA CFP CIM is a Senior Wealth Advisor and Portfolio Manager, Wealth Management with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138, email [email protected], or visit .
