Don’t let scammers trick you into parting with your hard-earned money
The pandemic is not the only danger South Africans currently face. Perhaps just as much of a threat is the real risk of being defrauded or scammed. Savvy scammers are constantly finding new and creative ways of tricking and stealing from unsuspecting and increasingly cash-strapped South Africans, particularly as more and more of us transact online.
Research by TransUnion shows, for example, that there were over 100 million suspected fraudulent transactions between when Covid-19 was first declared a pandemic on 11 March and 28 April – an increase of five percent compared to between 1 January and 10 March. Fraud is also expected to rise sharply in the coming months, jumping by at least 40 percent.
“Threats are everywhere, and often appear genuine, making it critical for every South African to be vigilant and constantly on the lookout for potential scams,” says Lyndwill Clarke, Head of Consumer Education at the Financial Sector Conduct Authority (FSCA).
The first step in protecting yourself is knowing the kinds of scams that fraudsters will attempt to trick you into, the way they will try to solicit your involvement and the warning signs you should look out for.
When scheming becomes scamming: beware of pyramid and Ponzi schemes
Common investment ‘opportunities’ that scammers use are pyramid and Ponzi schemes. Pyramid schemes require members to make an initial payment to join the scheme, and then to recruit new members in order to make a return on their investment.
“Essentially, members in a pyramid scheme make money by recruiting new members rather than from the sale of goods or services – but these schemes are sometimes cleverly disguised as business or investment opportunities,” says Clarke. “However, they are illegal and you will lose your money. You need to be careful and do your research before getting involved in any scheme that asks you to recruit other people or pay a fee as a condition of joining.”
Ponzi schemes, on the other hand, are fake investment management services that require you to pay a ‘portfolio manager’ who typically promises you attractive returns. The snag is that your return on investment is paid out with the funds contributed by new investors – meaning no actual investment takes place.
Scammers often try to solicit people’s involvement in these schemes through phishing, by impersonating reputable and trusted service providers such as your bank, through calls, emails, SMSes or social media messages. The scammers could even be people you know and trust.
“Scammers are typically extremely persuasive and disguise their schemes well to make them appear legal, so it can be difficult to tell that it is a scam until it’s too late,” Clarke says. “This makes it critical to do due diligence to determine the legitimacy of any organisation inviting you to participate in a scheme that will provide exceptional returns.”
Clarke’s top five tips for you to take to avoid losing your money to cunning scammers are:
- Only seek financial advice and assistance from registered financial service providers.
- A financial service provider must be registered with the FSCA to give you financial advice or sell you a financial product
- Ask your financial planner or advisor for their registration number and confirm this number with the FSCA to ensure they are authorised to sell specific products or provide financial advice.
- Never accept a deal where the process hasn’t been explained to you - your advisor is legally required to work with you to identify all your personal and financial needs, objectives and priorities. There should also be legitimate documentation to back up any investment decisions. Walk away if there isn’t.
- Determine upfront what fees you will be charged.
- Registered financial planners are obligated to disclose any fees you will be charged as a monetary figure and not just as a percentage, unless you are easily able to work out the monetary value from the percentage. Question your advisor on this: they need to be able to tell you what their broker fee will be, as well as what any other fees relate to.
- Ask for a copy of the advice given to you.
- Advisors are also legally required to record any advice provided on products or services, and you should have a copy of the recording.
- Dig deeper: find out about how your advisor will be held accountable for decisions made.
- Ask about projections for your return on investment in line with current conditions and don’t forget about your investment once you’ve signed off on it – check your statements to make sure you’re being charged the right fees, and follow up with your financial planner if you’re unsure about anything. Review your investments regularly.
- Don’t sign on the dotted line unless you are have done all the verifications and are absolutely sure that the financial product or service suits your needs and that you can afford the product or service for the full duration of the contract.