One in eight calls to financial watchdogs are concerns about pension and investment scams, the latest official figures reveal.
The Financial Conduct Authority (FCA) is the guardian of standards in the UK and responsible for making sure financial firms and advisers play by the rules.
Customer service staff dealt with 11,650 calls about suspected scammers in the year ending November 30, 2016.
That adds up to 32 calls a day from retirement savers and investors fearing scammers are after their money.
“As well as trying to help consumers with what they should do, we monitor the information we receive from them as this is a very valuable source of intelligence for us,” said the FCA report.
“Along with other sources, we use it to inform our action against fraudulent and unauthorised activities including our ScamSmart campaign, enforcement action and collaboration with other anti-fraud agencies.”
For the first time, the FCA has broken down the scam inquiries by type:
- Advance fee fraud – up 42% in a year and the source of one in three calls. The most common type of this fraud is a scammer contacting someone about a loan and offering to unlock the cash on payment of a fee.
There is no loan and the fraudster disappears with the fee.
“Advance fee fraud enquiries are notable for having a much younger consumer age profile than for most of the other types of scams with 42% of reports coming from consumers aged 35 and under,” says the FCA.
- Boiler room fraud – a consistent 28% of all calls running at around 270 complaints a month.
Fraudsters cold-call investors with worthless, overpriced or non-existent share deals offering higher than average yields.
“The fraudsters use high-pressure sales tactics and target older consumers – 59% of reports are from consumers aged over 66 and only 10% from those aged 45 and under,” says the FCA.
- FCA scams – 8% of the total and up 35% compared with the year before. Crooks posing as FCA staff contact people and ask them for personal and financial information as well as asking for fees.
- Out of remit or unregulated scams – Often investors who have staked money against an unregulated offshore investment on the promise of above average returns. The FCA cannot investigate complaints about scams that take place overseas or are carried out by unregulated advisers. This category takes up 5% of calls about scams.
- Recovery room scams – Another 5% of the total. Recovery room scams are when crooks take a second bite at someone who has already lost money by contacting them offering help in recouping their loss – for a fee.
“Fraudsters hope that because someone has already lost money to a scam, they might be able to steal more from them such as by claiming to be able to recover the previously lost funds,” says the FCA.
- Pension scams – 4% of the total. Pension scams include liberation frauds offering the chance to unlock retirement savings for the under 55s and phoney investment offers.
These scams are often identified as the scammer makes an approach offering a free pension review.
“Most of the firms making these offers are not authorised or regulated by the FCA. These activities often result in consumers investing in high risk or fraudulent investments or facing a large tax bill for cashing in their pension,” says the FCA.
- Forex – Foreign currency exchange scams covering a range of crimes, from binary option frauds to swapping money at bogus exchange rates. These scams make up 3% of calls.
“This is often a type of ‘clone firm’ scam where fraudsters use the details of a firm we authorise to convince consumers that they work for a genuine, authorised firm,2 says the FCA.
- Land banking – A con where a plot land is divided into smaller sections sold to investors on the promise that developers will buy from them at enhanced values. The land is worthless and the scammer knows this when trying to persuade consumers to buy. Land banking accounts for 2% of calls from concerned investors.
- Other scams – Around one in eight calls concerns other frauds, such as fake coloured diamonds and carbon credits.
How the scammers work
The FCA says the over 55s are eager to participate in what they believe are good investment deals offered by scammers and are quick to take up the opportunities.
The average loss is £32,000.
The FCA has scrutinised the calls they have received and drafted five common tactics that scammers try:
- Most frauds offer above market returns at seemingly low risk
- Fraudsters are good at flattering investors to make them feel good and important
- Most deals are offered on condition they are kept secret
- Fraudsters talk up their deals by claiming other investors are rushing to take part in the deal
- Pressure is put on investors to buy in by telling them the offer is limited and if they do not act quickly, they will miss out
The FCA illustrates how a scam works with the story of Robin.
Robin was called by a scammer who said they worked for the FCA. The caller claimed Robin had a £3,750 award for mis-sold payment protection insurance, but the money could only be released if he paid a 10% fee as an iTunes gift card.
Robin contacted the FCA asking about the arrangement as he thought the gift card payment was suspicious.
He was told no award was made and the FCA does not charge fees for paying compensation. The fraudster was reported to crime investigators.
Dealing with scammers
The FCA has enlisted help from TV’s Countdown quizmaster Nick Hewer to help potential scam victims identify when someone is trying to steal their money.
“As someone who has been approached by scammers myself, I know how hard it is to identify whether an investment offer is legitimate,” he said.
“They’re very clever, these people, playing psychological games to win over the trust of often vulnerable victims and that is why I’m working with the FCA to raise awareness of this troubling issue.
“The best way of dealing with scammers is just putting the phone down.”
The FCA suggests a three-point strategy for dealing with possible scammers:
- If they contact you about investing, just tell them you are not interested and do not respond to emails or texts
- Always check the firm or adviser offering the deal with the FCA list of regulated firms before investing
- Ask a financial adviser to check out the offer
What happens if you report a scammer?
The FCA, police and other regulators collate their scam data in a central database.
Financial scammers are dealt with by the FCA or police.
Consumers who fall victim to unauthorised firms – these are advisers who illegally operate in the UK – do not have access to a complaints procedure or compensation.
“We can take action through the courts using our civil and criminal powers to stop unauthorised firms and individuals,” said the FCA. “We processed 8,277 reports about potential unauthorised activity.”
The breakdown of how these were handled is:
- 521 inquiries into unauthorised firms
- 16 firms under investigation
- 168 alerts published to warn consumers d=not to deal with fraudsters
Cases that went to court resulted in jail sentences totalling almost 33 years, £2.7 million of confiscation orders and £1.9 million returned to scammed investors.
Find out more about financial scams
ScamSmart which shows consumers how to spot and avoid investment scams, including a warning list of unauthorised firms
Information on specific scams:
Advance fee fraud (loan fee fraud)
Reporting a scam to the FCA
Call +44 (0)20 7066 1000
Write to: Financial Conduct Authority 25 The North Colonnade Canary Wharf London E14 5HS