When people promote scams, they plaster their marketing material and social media profiles with images of holidays, fancy cars and luxury boats. This is a big, red flag! Picture: 123RF/ALEKSANDR DAVYDOV
When people promote scams, they plaster their marketing material and social media profiles with images of holidays, fancy cars and luxury boats. This is a big, red flag! Picture: 123RF/ALEKSANDR DAVYDOV

I recently did a radio interview on a financial product gaining popularity in SA and most likely a huge scam.

As I am not an investigative journalist, I don’t like doing these kinds of shows because I know I am going to get unwarranted abuse.

In addition, I know I am going to spend time trying to understand something that is probably designed to NOT be understood. I am therefore going to do a lot of homework so I can talk about something with the sole purpose of helping people. My payback? Gross abuse from crooks and naive or desperate people.

Minutes after the radio show, I duly started receiving abuse via social media. It took more than a week for the insults to subside during which time I blocked more than 100 people on Twitter.

I was accused of being stupid, ignorant, corrupt and a “paid influencer for a large SA bank”. The only valid criticism was that I did not know that 999.9 means “pure” gold. Apparently this ignorance is unforgivable and nullifies all the information I have ever provided in my books, articles and on radio.

So, how can you, as an investor looking for realistic ways to grow your money, tell if a new investment is legitimate or a scam?

Conspiracy theories are a great sign

Over the past 20 years I have seen many scams blow up in SA and they all tend to follow a similar pattern.

They are usually promoted in times of economic difficulty when people are desperate to make a living. They offer a promise of financial freedom and a way for people to take control of their lives.

They are often promoted as a way for people to break out of the established financial and regulatory system. This is important because it feeds into some people’s beliefs that they are in financial difficulty because of some sinister hidden group that aims to suppress the good people of the world.

This is an attractive message for people who have been retrenched or whose business failed, as it is much easier to blame something or someone else.

Rational investors should always be wary of investments that claim to work outside the “system”. This is especially important if the promoters are predicting the end of the financial world. Doomsday prepping has never been a great investment strategy.

Huge returns

When people promote scams, they plaster their marketing material and social media profiles with images of holidays, fancy cars and luxury boats. This is a big, red flag as it is likely that they are going to make a lot of money off you, and not for or with you.

As a recent example, the promoters of bitcoin scams lured people with the promise of guaranteed, huge returns.

It is sad to see that many people still fall for these promises, but what’s really depressing is that the scam artists seem untroubled by the losses suffered by those who believed in them. They simply move on, selling a new dream to different people.

No-one can predict the next scam, but it’s worrisome to know there are fads in investments. Crypto currencies backed by gold seem popular. Another is tiny amounts of physical gold, beautifully packaged and sold via “network marketing”. 

On investigation the price of this gold seems to be 30% more expensive than the current price — expensive packaging indeed. I am not sure if these are scams but I am certainly not placing any of my money in either of these fads.

Network marketing and investments don’t mix

I think old-fashioned stokvels are amazing. They create positive peer pressure that directs people to do something good, such as save their money. However, a stokvel via social media is a terrible idea.

Peer pressure only works when you know the people and can exert influence on them to behave in a morally correct manner. Network marketing seems to bank on our need for relationships and the goodwill generated by interpersonal connections.

But the goodwill is often abused, especially when promoters sell a dream of enabling people “to create their own businesses” by selling gold, crypto currencies or shares in property syndications or micro-loans.

Suddenly people who were selling car tyres last week are now global commodity experts or mathematical geniuses who understand the maths behind crypto currencies. With respect to car tyre sales people — you need experience and academic knowledge to sell financial products.

The product ‘does not need to be regulated’

This is probably the biggest warning sign of all. If you have a legitimate financial product that you want to sell, you should always apply to the financial regulators to be registered as a product — or financial services provider.

It is logical that you would want to ensure as much transparency and regulatory oversight as possible so that people can gain comfort that you are legitimate.

If the product provider is using global law firms to fight financial regulation, it’s best to avoid these providers at all costs. Taking people’s hard-earned money is a privilege, not a right and financial regulation is there to protect the many from the unscrupulous few.

Opaque products

Finally, financial products should be as simple and transparent as possible. It should be clear what fees are being charged and who is earning what. When products are complex or the ownership of the product provider is hidden, it is a sign to walk away.

• Warren Ingram CPF® is a Wealth Manager at Galileo Capital. Follow him @warreningram

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