Our Blog

How to Avoid Financial Scams

Have you ever received an unsolicited email in your inbox regarding your multi-million-dollar inheritance from a long-lost family member? Or a lucrative investment opportunity offshore? Chances are, you’ve probably been exposed to a financial scam before one way or another, to which some unfortunately have fallen victim to lose large sums of money. Here’s what to look out for and how to avoid them:


How Financial Scams Work

Financial scams often work in much the same way, regardless of the medium of which it is presented to you. Usually, as host Andrew Baxter says, these scams come as an unsolicited approach online or via telephone. More often than not these messages claim to be from a financial advisor or stockbroker, requiring money for a particularly lucrative investment; often selling the ‘get rich quick’ story to an unassuming investor. These financial scams have evolved from the ‘Nigerian looking to deposit money’ story in your email inbox to much more sophisticated operations. Ultimately, they all follow the same story – located offshore, unsolicited, and too good to be true often promising guaranteed returns.



A Personal Story of Million Dollars

Leaving names out here, a good friend and long-term client of Andrews unfortunately fell victim to one of the most sophisticated financial scams we’ve ever seen. His story is truly heart aching and here’s why. After being approached (unsolicited) from an offshore investment firm located in Mayfair, London (offshore), our friend was pitched a lucrative investment opportunity. With listed offices across the globe, their website and staff appeared to be of top quality – all very professional, cordial and with the right documentation and correct financial procedures. After parking a small amount of cash over to the firm, his investment proved successful to which he was able to withdraw and claim the profits – happy days.

When he subsequently did this a number of times successfully on small amounts of money, our now confident and trusting friend decided to go big and send over nearly $1m Aussie dollars to this firm. Upon his request for redemption on the lucrative profits, the organization required a further 15% sent over as withholding tax (which he did) and then some local tax to pay (which he did) after going through the trustee company in Singapore. Then, the money was gone. The company ceased to exist, and the funds had disappeared into the ether, never to be seen again. As someone who would be considered a sophisticated investor, this is a story of how an everyday Australian guy lost over a million dollars to a financial scam.



The Red Flags

Reading and reflecting upon the above story, in hindsight, certainly raises some red flags. When investing your money or partnering with a financial organization, the first step to avoiding a scam is to ensure that company operates in your own jurisdiction. The second you go offshore is the second you forgo legislative power to claim anything down the line. Secondly, ensure you know that the mob you are dealing with is licensed. Here in Australia, that would mean having an Australian Financial Services License (AFSL) to which an FSG and PDS would therefore need to be provided. Lastly, always talk to the same person. If you’re finding that there are multiple levels of people that you need to talk too in order to get an answer – chances are, they are probably stalling you. Have a trusted point of contact and use them for everything. 




If It’s too Good to be True, then it Probably is.

Sometimes, applying some basic common sense to the pitch you’ve received is all it takes. Chances are, if someone is presenting you with the best investment strategy since sliced bread, risk free, 10x returns and it sounds too good to be true – then it probably is. Understanding the investment mechanism and the strategy is key when looking to enter the market. Despite wanting to get your money working with the best intentions, you have to know what it is that you are getting yourself into. To learn more, reach out to Australian Investment Education.

Related articles