Protect Yourself

Ten tips for undertaking financial business.

Is the person - including website - with whom you are dealing ("the intermediary"), licensed and supervised by a regulatory authority?
Is the intermediary experienced and has he/she/it been in business for a long while? If not, you should find out why.
Have you read the terms of business (in particular any small print), any associated risk warnings or agreement before you commit to or sign any undertaking?
If you do not understand what has been shown to you, have you consulted a professional adviser?
Has the intermediary disclosed to you the charges which may be levied/commission which is being paid?
Have you been given a period in which you can change your mind, when committing to a long term contract?
If managing or advising on your investments, has the intermediary sought details about your financial circumstances and asked you how you wish to plan the future?
Before signing a long-term contract, make sure that you are fully content in case your plans change. You should be aware of any penalties for early termination, which may be significant.
Is the intermediary "tied" to offering you the products of only a few providers?
Is there a compensation scheme to provide some protection, in the event that the company or fund with whom you invest ceases to trade?

Protecting Yourself From Fraud And Mis-selling

Most people work hard for their money and most of us find it hard to save because of the cost of our day to day commitments. So when we can save we want our savings to earn the best return they can. We may be saving to buy a house, for our children or grandchildren, or for our old age. Whether we achieve the best return for our savings from the bewildering array of investment products or not, none of us wants to lose our savings through fraud or find ourselves with the wrong product through mis-selling.

Investment fraud is an international growth industry. Mis-selling of financial and investment products by a minority of cowboys in the financial services industry is too prevalent for comfort. Sadly, therefore, we need to work hard to protect ourselves and our savings. What follows is a checklist of some of the things you may like to think about, ask, and do. Regrettably, it cannot be exhaustive because circumstances vary and the ingenuity of the fraudster is almost limitless. Not all of it will be relevant to every case. You will need to use common sense.

Who Are You Dealing With?

If you did not ask for a visit or a telephone call be especially careful. Ask yourself: why is this person contacting me? What makes him or her think that I might be interested in what they are offering? Ask them these questions as well. Ask them how they got your name, address and telephone number. Don't be put off by "a friend recommended you". Mailing and subscription lists are bought and sold.

Take care to find out all you can about them. Who are they representing? What kind of business name does it have? Be particularly cautious if you do not recognise the name and it sounds grandiose. Words like "Bank" and "Insurance" are usually subject to control when used in business names. If you see such words you should also normally expect to find words like "Licensed by" or "Authorised by" and then the name of a regulatory body. If you do not see such words, ask why not. But there are other words that are not so tightly controlled like "trust", "investment", "financial". Do not be fooled by them.

Where is the company based? The further away it is from you the harder it may be to get something put right it if goes wrong. If the company is part of an international group of repute, there may be no problem. If it is not, be careful. Is it a real business address? Do people actually work there? If you went to that address would you find people belonging to the company whom you could talk to about your investment or account? Or is it just a "mail drop"? Fraudsters are very fond of mail drops. Mail drops are places where your letters arrive and are bundled up and sent on to another address, which may well be in another country. Mail drops are sometimes referred to as "accommodation addresses". But an accommodation address is wider than a mail drop because it may also provide office accommodation (including telephone services) which is available for rent by the hour, the day, or the week or the month. Fraudsters make use of accommodation addresses because they can be easily and quickly abandoned.

Is the telephone number a real one? Fraudsters often use answering services and/or switching services, whereby you ring one number and your call can be switched to another, sometimes not even in the same country as the first number. Does the area code match the address? Are you, for example, looking at an address in Leeds with a Liverpool telephone number? If so, why?

Having studied the business card, consider the person who gave it to you. Find out how long they have been with the company. Do they own the company (if it is not a name you recognise)? How long has the company been in existence? What is their role? You may see words like "financial adviser" or "investment consultant" on their business card. Such people often have to be registered or authorised by a body which regulates or supervises them. They do, for example, in the UK and you can check whether they are by telephoning an information line. What experience do they have in the area of investment they have approached you about? What other jobs have they had?

Why Is He Dealing With Me?

Which brings us back to why he has contacted you in the first place. Remember to ask how he got your name, address or telephone number. Ask yourself: What makes him think I might be interested in what he is talking about? What does he know about me and my circumstances? How has he determined that the product or service is suitable for me? What does he know about my plans and needs for the present and the future? What does he know about my attitude to risk?

What Exactly Is He Offering Me?

If you don't understand, don't buy it, accept it, sign up for it, or commit yourself in any way.

Are you quite sure what your money is going into? Are you sure what is going to happen to your money? Is it a deposit, an insurance product, a share. A unit trust, or what? Ask him: How do I get my money back? When or how often can I get my money back? Do I lose any money if I want it back soon? Or in a hurry? Who pays me my money back? If I have to sell something (a share, or bond) who will buy it? Is it marketable (lots of buyers) or are there only one or two? Beware if it is described as a "marketable investment" and it is the company selling it to you that undertakes to buy it back from you. A properly regulated collective investment scheme is one thing; a "quoted" so-called "penny stock" may be quite another. If it is a share, or stock or units, ask whether the price is shown in leading financial newspapers, such as the Financial Times, which have prices for many UK and foreign shares and bonds, and also investment funds (eg unit trusts, insurance bonds).

Ask him if what he is offering is regulated or supervised by an independent body. Does it have to meet certain standards before it can be sold to investors? If it is said to be marketable, is the market on which it is said to be traded (ie bought and sold) regulated or overseen by anyone? Ask him who these bodies are and if possible for addresses and telephone numbers. Ask him where you can obtain more information about the investment, or whatever it is. Be particularly careful if it appears to be a kind of deposit bearing a rate of interest which is much higher than you could obtain from a bank or a building society. Ask yourself how this business can afford such a high rate when others cannot. You may find yourself making a very high risk investment. Anyone who takes deposits in nearly every country of the world has to have a licence to do so. Check with the Financial Services Authority if the company is in the UK. They may also be able to help you check on foreign deposit takers.

Talking of high returns, you need to consider what kind of return the product is offering. Is it income or capital growth or what? Is it what you need and want? What about the risk of loss? What about your tax position? Be careful of capital growth. How is the growth measured? Who measures it? Are there published prices or values by which you can see what it is worth? If so, who publishes them and where are they published? Be very careful if the only way you will know how much your investment is worth is from statements or valuations provided by the seller. Fraudsters love to produce statements showing capital growth: it stops people from asking for their money back.

As interest rates decline, the need for income has driven many people (particularly the elderly) to make what are in effect unsecured loans to fraudsters. The natural desire to protect one's family and provide for sickness and old age has led many people to buy quite inappropriate and unsuitable insurance products from salesmen whose sole motivation has been their commission. The desire to be "in at the start" has led many people to buy worthless penny stocks from telephone.

We can all be fooled because we all have blind spots. These questions and suggestions may help to guard against some of them. Remember you worked hard for your money. Many salesmen are well trained to overcome your doubts and objections. They may not tell you the drawbacks or disadvantages of the product. You have to work them out for yourself. Resist the flattery, the psychological pressure, by thinking of and asking some of these questions (and others which will occur to you).

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