Spotting red flags

HIGH ANNUAL RETURNS

Investment scams often promise high returns to entice investors. When presented with such opportunities, it is prudent to verify how the scheme can generate such high profits. When in doubt, do not invest.

CAPITAL BACK OR BUY-BACK AT COST

All investments carry risk. Typically, the greater the promised investment returns, the higher the risk. Alarm bells should go off when you come across investment opportunities claiming to guarantee or protect your capital, and promise attractive returns at the same time.

REFERRAL COMMISSIONS

Bona fide investment schemes generally do not offer commissions to investors for referrals.

"Investment scams tend to use such incentives to encourage existing customers to refer their friends and associates to the investment opportunity so as to quickly enlarge their investor base," said the organisers of the "Beware! Investment Scams" campaign, MoneySense and the Securities Investors Association Singapore.

LIMITED PERIOD ONLY

Pressure tactics such as limited-time or limited-opportunity offers are usually used in scams to rush investors into making an investment commitment.

When hard-pressed to commit money quickly, recognise it as a pressure tactic and ask yourself if you fully understand what you are buying into.

Refrain from committing to any investment on impulse. If in doubt, it is safer to walk away with your wallet intact.

LONG YEARS OF EXPERIENCE

Investment scams are often run by firms that claim to have been established for a number of years. Some of them might claim to be regulated by the authorities or have affiliation to the Government.

The Monetary Authority of Singapore maintains a Financial Institutions Directory. Use it to check if a firm is regulated to provide financial services. It is important to verify the background of these firms before investing.

EXCELLENT LOCATIONS

Scams involving property often claim the real estate is located in excellent locations, near world-class facilities or famous tourist spots.

It is important to check with the land and planning authorities to verify the authenticity of a development, and gauge the investment prospects of the location before investing.

TESTIMONIALS

Typical scams often share testimonials of "satisfied customers" who have made money from the investments.

Approach such claims with scepticism, or even ignore them, because it is difficult to check their testimonials.

Instead, assess investment opportunities based on known facts and verifiable information.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on April 30, 2017, with the headline 'Spotting red flags'. Print Edition | Subscribe