Holborn Assets industry Watch – a look at how to stay safe in the world of personal finance and beyond.
Would you be fooled by a pension scam?
In research commissioned by the UK’s Citizens Advice Bureau in 2016, it was found that three-quarters of us are confident that we wouldn’t be fooled by a pension scam – but nine out of ten of us were actually fooled by mocked-up scam material.
Look at the image below of three advertisements for pension consultation:
Which of these three advertisements is free of scam warning signs?
(Source: UK Citizens Advice Bureau, 2016)
Only 12% of the 2000 respondents in the CAB’s 2016 poll spotted that Option C was the reputable offering without any signs of a scam.
64% said rather that Option B was free of warning signs, and 24% said instead that Option A was safe.
So what’s wrong with Option A above?
Offer of free advice – this doesn’t necessarily mean that this is scam material (since many reputable companies offer free advice too), but scamsters rarely charge to see you!
Paperwork delivered by courier – why on earth would a legitimate business deal require such urgent attention when the two parties involved (ie. you and the scamsters) have only just made contact? Couriering paperwork does play a part in many legitimate business arrangements – but not right at the beginning of a deal; it simply shows that the scammers want to rush you, and also to impress you.
So what’s wrong with Option B above?
Offer of free advice – (see above)
High investment returns – any investment with an expected return of 15% is bound to be highly risky. And that is assuming this is a true figure. Where’s the evidence? It sounds too good to be true. Fair enough, it doesn’t say that this % is guaranteed – which would be supremely suspicious – but still, 15% investment return is a bold claim to be making in today’s markets.
Access to pension before you are 55 – theoretically this is possible given very specific circumstances, but is not something that is likely to be provided routinely by a reputable service provider.
So what’s right about correct answer Option C above?
Advertised fee – immediately being up-front about their fees shows the company is (likely to be) being honest.
Reasonable investment returns – a figure of 5% shows that this company is not promising the earth.
FCA-regulated – the gold standard of accreditation in UK-related personal finance.
So maybe you would be fooled by marketing material from a scam outfit. But surely before rushing to sign away your life savings for a stab at El Dorado, you would check with somebody else first? Just consult a friend to make sure that you hadn’t gone completely mad? Or, even better, shown all paperwork you’ve had about the deal to a qualified Independent Financial Adviser?
Apparently the majority of senior Brits prefer to go it alone – and that’s why they’re vulnerable. Unbelievably, according to FCA research published in March 2017:
- Only 48% of over-55 year old Brits would seek independent advice before signing the dotted line on any investment.
- 34% said it was best never to discuss investment decisions with others.
- Only 19% were aware that offering high investment returns was a recognised scam tactic.
Another key scam tactic is to get people signed up under pressure, and often scamsters use the excuse that the investment opportunity is about to elapse. The FCA findings show that half of over-55s may be vulnerable to this ploy, with 53% agreeing that acting quickly could often be the key to getting a good deal.
So is there such a thing as a sure sign of a scam?
Public awareness of scams is patchy. Six out of ten of us are suckers for promises of high returns, but only one out of every five Brits aged 55+ knows that advertising high investment returns is a strong scam sign.
Interestingly, it is cold calling that people are most suspicious of – with 92% of over-55 yr olds polled this year by the FCA saying that this rings alarm bells.
2016 research from the CAB shows that 68% of scams are initiated with a cold call. But that doesn’t mean, logically, that all cold calls are scams. Entirely reputable companies, across many sectors, often choose to call with limited introduction. So we cannot, logically, conclude that cold calling is a sure sign of a scam – although UK government legislation announced last year has pledged to ban all cold calling about pensions.
Nor it is true that the offer of a free review of your financial situation is a sure sign of a scam. Again, offering a free pension review is an opening play of many scams, but also a feature of many offerings which are entirely honest and could – as opposed to bankrupt you – expose you to a whole new world of expert financial advice and structured support.
Used individually, some marketing tools can either be entirely innocent or suspicious. A cold call is not necessarily from a scammer, for example – that just stands to reason. But seven out of ten scammers begin with cold calls – that’s a fact too. So how do you tell when scam warning signs are real?
The key is to look at combinations of warning signs, rather than the warning signs individually. Put it another way: things can look a bit fishy on their own but actually turn out to be entirely genuine – but if it all adds up to a big stink, then it probably is a big stink.
For example, a cold call followed a free pension review that suggests (for example) you invest all your pensions savings right now in a unique investment opportunity in Mongolian bamboo plantations is suspicious; a cold call followed by a free face-to-face pension review with an FCA-registered Independent Financial Adviser that suggests (for example) you review some far-less-exotic domestic options as part of a much wider audit is less suspicious.
An email out of the blue from some company you’ve never heard of offering you tax-free access to your pension if you are under 55 – but only if you sign this week, and buy particular financial products – is suspicious; an email from a recognised firm of financial advisers (which could be Holborn Assets or any of our established colleagues in the international sector) offering you pension-related tax advice is less suspicious.
Sniffing out scams is all about being aware of degree, and context, and combination. Certainties are hard to come by, but being scam-safe is not complicated.
The one warning sign to watch out for in particular is the promise of high returns, because research shows that people generally have a huge blind spot here.
For scam advice right from the horse’s mouth, become one of the 260,000 annual visitors to the FCA’s scamsmart website.