What are the hallmarks of a financial scam?

If financial scams were obvious, they would not work. But with the benefit of hindsight, there are always certain hallmarks to scams that should have flagged their fraudulent nature. So how can a prudent investor protect themselves and try to spot the signs that all may not be well?

Too good to be true

Fraudsters are desperate to reel in as many investors as possible. Accordingly, they typically offer deals with over inflated promises of investment returns. After all, why would potential victims be attracted to something that is “run of the mill”? If someone is offering double or treble the standard return, it is probably too good to be true.

Hazy on details

If a scam promises the Earth but falls well short on how it will be delivered, this should raise suspicions among potential investors. A genuine investment house should be  happy to go through a proposal line by line to satisfy your curiosity.

Unchartered territory

Are you being offered a new class of investment? A type of bond that you have never heard of before, that has not been written about in the financial press? Of course, genuine “scoops” do come along where you may be among the first to get in on a hot opportunity, but these are few and far between.

If you are not using a financial adviser, be wary of investing in parts of the world that do not have a mature, well regulated investment community.

Not all financial scams are investment scams

Most people would automatically recognise the emails from strangers asking for administration fees to release an unexpected inheritance as a scam. But what about a training company where you are asked to pay up front for training materials, and never receive any? Or a recruitment company that asks for an administration fee to register you for jobs that do not exist? The trouble with the internet is that it is very easy to present a respectable looking website, when what you are dealing with is a well dressed scam.