The FCA are warning consumers to be extra vigilant during the lockdown period as there have been reports of increased activity from “scammers” attempting to trick people into parting with their savings. Action Fraud have reported a 400% increase in online “phishing” e mails in March alone. The FCA have announce a new campaign to increase consumer awareness at a cost of £2.3million.
Scams have been a real problem for the financial services industry especially since pension freedoms were introduced back in 2015. The release of significant pension pots into the hands of consumers obviously created an opportunity for fraud along with it. One of the main ways in which pension funds have been targeted is through “exotic” or what we call “illiquid” investments, which offer the lure of attractive returns but are unregulated and offer no protection to investors. The other main scam is one which offers early access to pension funds, which can’t happen in reality under the current regulations.
Its estimated that over 5million pension savers have been targeted by some form of scam and there are a number of different types of approach, including:
“Phishing” – this is where you get an e mail that tries to get you to reveal personal information, for example a tax refund e mail.
“Smishing” – this is like “Phishing” but involves text messages rather than e mails. But the principle is the same, it a fraudulent text posing as a refund or a request for a donation or the ned to fix a problem etc which is designed to get you to click a link and reveal your personal information. Then finally there’s “Vishing” – which is a phone call from a fraudster usually pretending to be from your bank or the police, but once again trying to get you to reveal your personal information, particularly your passwords and bank details.
In some ways however, some of us do encourage scams. As Robert Jackman writing in the Spectator (7/3/20) explained, Social media has led to the rise of alternative investment strategies (or get rich quick schemes) and these are appealing to younger investors who are happy to take advice from “unqualified strangers” on the internet. No wonder then that current estimates are that the Bitcoin bubble of 2017/18 has so far cost American investors $1.6 billion.
But this is still happening. For example, the new eToro online social media trading platform is upfront about the risks saying that 66% of its users lose money! (this is a platform dealing in complex Contract for Difference trades) which the FCA typically says it is “considering” tougher marketing restrictions!
So, what could be done?
One example would be to ban the transfer of funds into “illiquid” or unregulated investments and place the onus on the transferring pension scheme to take responsibility for ensuring that transfers to these types of schemes are not allowed to go ahead. There would be the argument about freedom of choice for consumers to spend/invest their money wherever they liked, but the vast majority of financial advisers would almost never recommend these types of investments anyway.
The other argument is for the FCA to spend much more time and resources on tracking down these rogue schemes and indeed rogue advisers who may be facilitating these scams. The FCA does have a very poor record in terms of preventing fraud and actually prosecuting fraudsters.
The FCA have introduced some rules to try and prevent scams, but many in the industry don’t think that these go far enough. There is potentially much more that can be done.
Until then, please remain vigilant. As always if it looks too good to be true – it is!