Knowing who to trust in the Investment Industry

Scams, theft and fraud are all real threats to the integrity of the investment industry. It is more likely to meet someone on the street who has fallen victim to a scheme on the financial markets. It always looks the same – someone advertising a flashy lifestyle, or promises of magnificent gains. And in every scenario, you don’t see your money again.

But, it doesn’t have to be like that. There are a few ways and a checklist you can follow to know that the people who have your money are licensed to do so.

Firstly, what are some red flags to watch out for in the investment industry?

The first thing that screams “SCAM”, is anyone that PROMISES that you will see a certain return over a specific period. There are no guaranteed returns in trading and investing – even the safest “zero risk investments” carry some risk.

Yes, you may get 7% per year at your bank on a savings account, and while that is guaranteed, there is no guarantee that the bank doesn’t go out of business. If they go bankrupt, forget about 7%, you will have nothing.

This is not to highlight the risks of a savings account, but just to make you aware that risks are inherent with anything we do – and any guarantees need to be taken with more than a pinch of salt.

Scams are no longer only disguised as glitchy website and emails full of typo’s. Scammers put in immense effort to deceive consumers – fake websites that look real, emails that look like they come from your bank. If it looks suspicious, it probably is and is best to stay away.

The age old saying in avoiding scams goes “If its too good to be true, it probably is”.

Well, how can I make sure the investment people I am dealing with are who they say they are?

In South Africa, we have a body called the Financial Sector Conduct Authority (FSCA). This regulator oversees all licensed financial service providers in South Africa – and any company that takes your money into their hands, HAS to be regulated by the FSCA.
To check if a company is regulated, check on their website or emails for their financial service provider number. It is usually 5 digits, and can be verified on the FSCA website.

Check My FSP

Here you will be able to see the representatives of the company, you can easily type in the name of the person you are dealing with and confirm whether or not they are the person they say they are.

Sometimes, scammers are clever and manage to impersonate someone from a licensed FSP. The best way to combat this is to ask to either pick up the phone and dial the number visible on their website – or request an online meeting where you can meet face-to-face. This way you can do your due diligence and confirm you are dealing with the correct people.

Apart from scammers, how do I make sure the people who are dealing with my investment, have my best interests in mind?

It’s easy to decipher whether or not someone has your best interests in mind. Before you make your first deposit, or EFT your savings to a company, the company should be asking you a series of questions to ensure that you are in a position to take on specific risks.
Questions about your income, existing assets, investments and savings, and knowledge and experience in the markets should be part of the sign up process for any entity dealing with your cash.

This helps the company decide where to “allocate” you, and what is more appropriate for your current financial situation.

Making sure the company you are dealing with has completed these checks and you’ve spoken to a real person, and you’ve done your due diligence to check the company is regulated, then you are in a safe space to trust the individuals with your money.

The caveat is that financial advice costs money and may not always end up with a positive outcome. Positive results are not implicit with good financial advice, and it is important to educate yourself on the risks that you might face when tackling the financial markets.
Just remember, if it’s too good to be true, it most likely is.