2-8 October, 2017
Media Release: Are you a smart investor?
In a 2016 Banking Ombudsman case, an elderly couple lost their life savings when they became involved with what they thought was an investment scheme in Hong Kong and it turned out to be a scam.
Within just two months, the couple had cleaned out their term deposits worth $100k and taken out two $10k personal loans to cover fees associated with their new investment opportunity. It was only when their son started asking questions that the investment scheme was revealed to be a scam.
The couple complained to their bank and subsequently to the Banking Ombudsman scheme that the bank had been negligent by allowing them to break the term deposits and by accepting the personal loan requests. Investigations found the bank had followed good practice when authorising the couple’s requests, and the couple had given alternative reasons for the breaking of the terms deposits. You can read the casenote here.
This case is one of many that stresses how important it is to verify investment opportunities and seek advice prior to transferring money. “It is critical that new investors understand that no investment is without risk” says Banking Ombudsman, Nicola Sladden.
There are often red flags that suggest when an investment scheme might be a fraud:
- If you hear about the opportunity as a result of a cold call and there is pressure to make a decision quickly
- If payments must be made offshore and in cash
- If you are discouraged from talking to family or friends about the investment because it is ‘confidential’ or it is pitched as being exclusive
- If it is pitched as a low risk investment with high returns - high returns are normally an indication that the investment is high risk
- If the investment sounds overly complicated and the person selling the investment doesn’t answer your direct questions.
This week marks the start of a new global campaign to raise awareness about the importance of investor education and protection. Started by the International Organisation of Securities Commissions, the initiative’s key message is what it takes to be a smart investor. A smart investor is defined as someone who:
- verifies that an investment professional is licensed
- conducts research on a product before investing
- assesses the impact of fees when choosing an investment
- understands that risk exists in all investments
- avoids "get rich quick" and "can't lose" schemes
- recognizes the power of compound interest
- recognizes the importance of diversification
- plans for and invests according to his/her future needs and goals