Alison Steed reports on the red flags advisers and their clients should look for as financial scams continue to rise
Financial scams are on the rise, with about 70% of adults noticing an increase in the number of financial scams in the past six months.
The research, from Fidelity International, also found that almost two thirds (64%) of people are concerned about what to do if they are targeted by a financial scam. Scams are coming at us from every angle (see graph) – email is the most prevalent (accounting for 55% of scams) but social media, text message, phone scams and even doorstep scams all need to be watched for.
Scams can cover a wide range of financial products too, everything from pension to investment frauds, and even romance scams where a criminal will ‘groom’ a vulnerable person and leech money from them in a variety of ways.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, says: “Scammers are the ultimate shapeshifters, able to change their methods to take advantage of the latest issues at rapid speed.”
The cost-of-living crisis is leaving more people financially vulnerable as they struggle to pay their bills, which offers fertile ground for fraudsters as anxious people are more likely to fall for cons through desperation.
“Attackers often use investment, pension or other savings-related scams which aim to get unsuspecting people to hand over their hard-earned money,” says Debbie Barton, group financial crime director at Quilter. “They can appear perfectly legitimate, with websites, testimonials, chatbots and marketing materials.”
Certain age groups are more likely to be targeted, with the over-55s seen as “particularly attractive targets” because they can access their defined contribution pensions flexibly from this age, says Tom Selby, head of retirement policy at AJ Bell.
Types of scams
Pensions have always been a target of fraudsters but the problem got worse after the advent of pension freedoms. Morrissey says: “Pensions and investment scams often come about with an ‘out of the blue’ contact from someone. They could be offering a free pension review or the opportunity to invest in some high-performing investment. The scammer will often adopt pressure tactics to get you to act quickly – they don’t want to give you the time to think things through.”
Being rushed is a red flag, as a genuine and reputable financial adviser would not expect you to hurry your decision. But as fraudsters become more sophisticated, they have taken to cloning legitimate firms to lure victims into thinking they are dealing with a bona fide investment or pension firm,” says Selby.
He adds: “They will often follow investing trends, with cryptocurrency-based scams particularly prevalent in recent years. If you are at all uncertain about who you are dealing with, check your firm’s details on the FCA register and contact them through a channel you trust.”
The more traditional pension scams, where savers are offered ‘early access’ to their retirement pot, have not gone away, says Selby, and with these you not only lose your pension but also face the possibility of a tax charge from HM Revenue & Customs.
What more can be done?
The amount of legislation designed to prevent scams, particularly around online scams, is currently very limited. The Online Safety Bill, which will require “social media sites and search engines to stamp out fraudsters and scam adverts on their platforms, including financial scams, among many others”, says Barton, has been delayed due to the three changes of Prime Minister in a matter of weeks last year.
But Barton adds that we are now beginning to see gradual progress with the remaining stages of the Bill due to be completed in early 2023.
However, there are also some new ways scams are being addressed. For example, the Banking Protocol, a UK-wide scheme developed by UK Finance, National Trading Standards and local police forces, offers a lifeline to victims of fraud, says Barton.
She adds: “The scheme trains customer-facing staff to spot the warning signs that suggest someone may be falling victim to a scam, before alerting local police to intervene and investigate.”
Financial firms also have a responsibility to help prevent fraud and help their clients avoid becoming a victim, for example by clearly listing their official web addresses and contact details “to help clients identify a fraudulent impersonation”, says Barton.
She adds: “Likewise, if a client believes they have been targeted, they should have the ability to report it directly to the firm and to have access to support should they need it.”
However, no matter what legislation is in place or how much help there is out there, the best way to avoid a scam is by being more aware of how to spot them in advance. This includes the offer of high ‘guaranteed’ investment returns, which typically do not exist.
Morrissey says: “If something sounds too good to be true, then it often is. And while many people don’t want to appear rude, the best approach is to terminate contact with the scammer as soon as possible – even if it means just putting the phone down on them.”
Alison Steed is a freelance journalist