Don’t get duped: How to spot an investing scam

Jason Prowd  |  30 November 2018  |  7 min read

Key Points
  • Investment scams are slick, professional and take millions of dollars from thousands of Australians.
  • Don’t fall for a guaranteed return or feel pressured into an instant decision.
  • Always check an investment company has the proper authorisation or license to operate, whether in Australia or overseas.

If you’re reading this, the thought of making money through investing has probably crossed your mind at some point. And that’s exactly what scammers are counting on when you get that phone call or email or see their Facebook ad.

If you’ve ever scoffed at someone who’s fallen for it, remember that scammers are smart, determined people who profit enough from dodgy deals to justify putting a lot of time and money into them. This year alone, the Australian Competition and Consumer Commission’s (ACCC) Scamwatch service has already tallied more than $35 million in scam losses. Knowing what to look out for when you start dabbling in the investment world could save you from being one of nearly 3,000 people who’ve been taken for a ride on the promise of untold wealth.


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The ones to watch out for

Investing scams come in many guises. You could be promised stock-picking tips that can’t fail, or enticed to climb aboard the bitcoin gravy train. Cold calls, emails and even dedicated mobile apps are some of the tools scammers use to fire up interest and wear down skepticism.

Here are some better-known scams. If it looks even a little like one of these, ignore it, report it or seek independent advice before handing over money or personal details.

Too-good-to-be-true investment schemes

Whether it’s a cold call, email or invitation to a seminar, these scams have one thing in common. You get the secrets to make you rich and all you have to do is pay for a report or make a deposit to get started. It could be property or shares they’re touting as the asset guaranteed to instantly transform you into a millionaire. The only thing guaranteed in this scenario is that as soon as they have your money, you’ll never hear from them again.

Binary options

This is the scammer who swears they have the knowledge to make a quick killing from buying low and selling high. Often fronted by a professional-looking website and trading platform, you’ll get excited by a windfall from more cautious early trades, convincing you to invest more. But it’s all a smokescreen designed to win your trust and dollars.

‘Pump and dump’ share buying

In this case, your money may actually buy some real shares. How this scheme succeeds is by getting as many as people as possible to buy an asset, driving up the price. The scammers then dump their very substantial holding, making a fortune and causing the price to plummet. What you’ve bought becomes worthless.

Your investing checklist

So what should you look out for? Here’s a list:

  • Ask any investment professional for their Australian Financial Services License (AFSL) and also check their details on the ASIC Connect Professional Registers.
  • You can also check ASIC’s current list of companies who don’t hold a licence and are known to be offering unsolicited financial or investing advice and services.
  • Be extra careful of unsolicited offers of a service or product. If they’re approaching you and it sounds too good to be true, ignore it or report it to Scamwatch.
  • A promise of guaranteed returns or zero risk should put you on your guard. Any real investing professional will tell you that there are always risks involved.
  • Anyone that puts you under pressure to make an instant or quick decision can’t be acting in your best interests. Always take time to do your research and find out exactly who you’re dealing with.

Be extra careful overseas

If you invest in a business operated in Australia, financial services regulators and laws protect you—scam or not. But ASIC doesn’t have power overseas, so you’re more vulnerable when you invest internationally.

To check up on international investment opportunities, you can contact the International Organization of Securities Commissions (IOSCO) to get in touch with the regulator for the relevant country. IOSCO also put out alerts about investment companies known to be operating without authorisation.

There are so many genuine and successful ways to invest that scams really shouldn’t get a look in. My advice is to start your investing journey with your own research to find options you know are legitimate before you’ll even consider making a long-term commitment with your money. Earning a guaranteed fortune overnight from any investment always has, and always will be, a fairy tale.


Jason Prowd leads Morningstar Next: ready-made investment portfolios.

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© Morningstar Investment Management Australian Limited (‘Morningstar’) and any related bodies corporate that are involved in the document’s creation. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third-party providers accept responsibility for any inaccuracy or for investment decisions by any person on the basis of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment. Any general advice has been prepared without reference to your investment objectives, financial situation or needs. You should consider the advice in light of these matters and if applicable, the relevant disclosure document before making any decision to invest. Refer to our Financial Services Guide for more information.

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