The financial advisory world is ablaze with chatter about fraudulent investment products duping a number of UAE residents. Here’s a primer on how to avoid getting caught up in future scams.

 

Would you tell me, please, which way I ought to go from here?” asked Alice.

“That depends a good deal on where you want to get to” said the Cheshire Cat.

“I don’t much care where –” said Alice.

“Then it doesn’t matter which way you go” said the Cheshire Cat.

—‘Alice in Wonderland’, by Lewis Carroll

 

In the world on investment, choosing the wrong product or being unaware of the risks involved could lead you to a similar situation like the one in Alice in Wonderland.

From unsolicited calls, texts or emails asking for personal details to outrightly promising out-of-this world investment return on investment, scamsters and fake financial advisors operating in the UAE and the region use every means to target unsuspecting customers looking for financial return or seeking financial advice.

Even as the ever-growing swarm of scamsters and investment advisors try to outdo one another promising unimaginably high returns, history shows the good times don’t roll in so easy.

Tricks con artists use to cheat you

Scamsters are experts in cheating people out of their money. By mimicking the real customer support accounts and adding a layer of legitimacy, they apparently look ‘real’ at a glance. Often, financially intelligent people fall prey to investment fraud.

But beware!

Typical scams could range from fake bank emails/phishing, guaranteed return, Ponzi schemes, lottery scam, dealing with unregulated firms, and so on.

While phishing is one of the most prevalent, it is not the only type of scam that you need to be wary of. Here are some examples of other types of scam. In the end, it all boils down to fraud.

 

Guaranteed return

A good old-fashioned scam that often clicks. Scammers and fraudsters will do all they can to gain your trust, in order to cajole you into investing your money in their schemes.

But the best way to avoid being scammed by this trick is to be wary of high-sounding investment pitches that promise a guaranteed incredible return. This is simply because in the world of investment nothing is ‘guaranteed’. And therefore, if someone promises you large fixed returns on your investment, be assured it’s a scam.  

Remember the infamous Bernie Madoff? He was once a highly-reputed financial advisor, giving stellar investment return to his clients. But as it turned out, his high-yield returns were part of a grand Ponzi scheme.

If it’s too complicated, it ain’t meant for you

It’s not too uncommon to see financial advisors scamming their clients by offering overly complicated investment products. There are many complex financial products so opaque that very few people really understand them.

If the financial advisor is not able to convince you how the investment will make money, this means you are not aware of the accompanying risks.

But remember, simplicity is the rule of the game in investment. So don’t buy an investment product unless you fully understand what you are buying.

To avoid being scammed, understand the product/ asset, how it works, the risk-return matrix and the purpose for which you are buying it.

Verify advisor’s credentials

A key way to securing the safety of your money is to avoid dealing with unregulated advisory firms at all cost. Many a time, financial scammers remain anonymous and out of the reach of regulatory authorities,, which is a warning sign.

But you can avoid falling prey to a shady financial advisor who is not registered in the country where he is selling investment products. Ask yourself: Is the advisory firm and the advisor you are dealing with registered or licensed in the country where it is operating?

These are some of popular tactics unscrupulous financial advisors and scamsters use to dupe their clients. There are many other types of investment scams that will be analyzed in a separate blog.

However, the underlining theme in all of these is the same — if it sounds too good to be true, it probably is. Watch this space for more!

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Investment management and insurance companies

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Professional bodies

Investment management and insurance companies

Consulting firm

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