A worrying 2 in 5 wealthy individuals have fallen victim to a financial scam

A recent survey reported by Professional Adviser revealed that 2 in 5 wealthy individuals have been the victim of financial crime.

Of the 2,000 people with assets worth more than £250,000 who were surveyed, 41% of them reported they had been scammed, with more than a third saying they had fallen victim in the last six months. 20% of the victims lost money through investment scams, while 15% were defrauded by pension scams.

Pension and investment fraud are two common methods of scamming affluent people. Read on to find out how these scams work, some red flags to watch out for, and what you can do if you find yourself the victim of financial fraud.

Investment scams

Investment scams will attempt to make you part with your wealth, either into a fake scheme or one that is designed to make you pay more than the potential returns. They can be difficult to spot and may appear legitimate, with professional websites, client testimonials and other marketing material.

There are many different types of investment scam, and the rise of digital communication and the internet has made them increasingly complex and difficult to discern.

Indeed, according to UK Finance, in the first half of 2023, victims of investment scams collectively lost £57.2 million.

One of the most notorious forms of investment fraud is a “Ponzi” or “pyramid scheme”. In this scam, fraudsters collect money from new investors to pay earlier ones. The scheme continues until the amount owed is greater than the amount collected, and the scheme collapses leaving investors out of pocket.

How to spot an investment scam

When it comes to investment scams there are several red flags to be wary of, including:

• Cold-calls – Cold-calls should always be treated with a degree of suspicion, especially if the caller attempts to contact you several times over a short period. If you answer a cold-call and find that you are unable to call them back or locate any further contact information, this may also be a sign that the caller was fraudulent.
• High-pressure sales tactics – An investment scammer will often try and push you into making a quick decision. For example, they may tell you that their offer is available for a limited time only or for a certain number of people.
• High-return, low-risk offers – If an investment offer seems too good to be true, it could be a scam. Fraudsters often offer high returns on investments or downplay the risks as a way of enticing victims into their schemes.

Pension scams

Pension scams also come in many guises, but they usually promise some form of early access to your fund that requires you to transfer your pension pot.

The fraudster might attempt to persuade you to cash in your pension or take a loan from it and then hand this money over for them to invest.

Alternatively, a criminal may try and convince you to move your pension savings from your current pot into a new one with supposed higher returns.

Since April 2015 it has become easier to self-manage your pension pot once you reach the age of 55 (rising to 57 in 2028). This also means that it has become easier for scammers to operate and commit fraud. It is important to remember that if you are aged under 55, you cannot withdraw cash from your pension without incurring significant charges, unless in exceptional circumstances.

Yet, according to an FTAdviser report, between 2020 and 2022 more than £26 million was reported lost through pension scams to the City of London Police’s National Fraud Intelligence Bureau. This figure could be the tip of the iceberg as some victims may not realise they’ve been scammed straightaway.

How to spot a pension scam

As with investment scams, there are a few tell-tale signs of pension scams you should be alert to, including:

• Cold calls – Pension cold calling was outlawed in 2019, so any unsolicited calls should be ignored
• High-pressure sales tactics
• Offers that guarantee better returns than your current pension
• Offers to help you “unlock” or “liberate” your pension pot, particularly before the age of 55
• Unusual investments
• Complicated structures which may involve several different groups, each of which will take a fee.

How to avoid scams

As the research from the survey indicates, financial scams are sadly all too common among affluent people. Thankfully, there are several things you can do to avoid them.

A good rule of thumb is to reject any unsolicited calls you receive. If you have already picked up the call and you feel suspicious, hang up. You can always return the call or proactively contact them if they are legitimate.

Remember that a trusted provider, such as a bank or insurance company, will never ask you for your password or other sensitive information.

If you do find yourself on the phone with someone who is proposing an investment or pension scheme to you, don’t give in to pushy sales tactics. If you are tempted by an offer, don’t commit to anything without seeking further advice.

You may want to research the firm that has contacted you. For example, you could find out if they are on the Financial Conduct Authority (FCA) register or on the FCA warning list, check their HMRC status, or research their reputation online.

If you have been offered an opportunity, you can also speak to us and we can help to determine whether it is genuine.

Finally, never share your passwords or bank details, or download software from a source you do not trust.

What to do if you think you’ve been scammed

If you think you have been the victim of financial fraud there are a few things you can do.

• Contact Action Fraud
• Contact the FCA
• Report an online scam advert on the Advertising Standards Authority website.

Get in touch

If you want further advice on how to avoid financial scams and what to do if you are the victim of one, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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