'Once bitten, twice shy' as scam victims shun investing again: Quilter research

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'Once bitten, twice shy' as scam victims shun investing again: Quilter research

Retail investors who fall victim to unscrupulous scammers are put off investing again, according to new research from Quilter published today, which shows that as many as seven in ten people surveyed who have fallen victim to a scam in the past would shun investing in any way again.

Investment related scams are proliferating year on year, and financial services firms are reporting the growing prevalence of organised criminals impersonating the brands of legitimate firms to sell non-existent investment products online and on social media. 

So far in 2020, the FCA has issued 1,031 scam warnings involving individual attempts to defraud consumers. This is already an 80% increase on the amount of warnings in 2019, and a staggering 301% increase on the amount of warnings published in 2015[3].

Unlike the tightly regulated environment of print and broadcast, the internet remains a wild west in which scammers have free rein to use paid adverts to promote fake investment products to unsuspecting internet users searching for the best way to use their money."

For those that fall victim to a scam and shun investing again, this could spell disaster for their long-term financial plans. Analysis by Quilter shows that leaving £10,000 in a cash ISA between 2010 and 2019 would have returned 12% ( -10% after inflation), compared with 20% (-4% after inflation) if this sum was invested in the FTSE All Share index (assuming 1.5% charges) and 131% (88% after inflation) if invested in the MSCI World index (assuming 1.5% charges).

Without government intervention to tackle scams, the current period of considerable economic uncertainly coupled with historically low interest rates presents the ideal environment for investment scammers to thrive.

The legal deterrent is extremely limited. A previous FOI request from Quilter to the City of London Police revealed that in 2019, nearly 400 pension fraud reports were submitted to Action Fraud. Yet just 26 cases, little more than two a month, passed the review process and were given to the police to investigate.

Quilter has called on the government to broaden the scope of their forthcoming Online Harms legislation to include financial scams. This would ensure that search engines face a legally enforceable duty to protect users when they search for investment products online. 

Matt Burton, chief risk officer at Quilter commented: "It's unsurprising that once bitten, investors are twice shy as the modus operandi of investment scammers is to build a relationship with their victims before betraying their trust to steal their hard-earned savings."

"If you have had the misfortunate of having your trust betrayed in this way, you are far less likely to trust anyone else with your money again. But shunning investing for life could spell disaster for your long-term financial plan. Not only will you have suffered an initial loss from the scam, but you will also miss out on years of returns if your savings sit idle in cash.

"Unlike the tightly regulated environment of print and broadcast, the internet remains a wild west in which scammers have free rein to use paid adverts to promote fake investment products to unsuspecting internet users searching for the best way to use their money. The regulator is powerless to intervene to protect consumers and can only promote their own adverts warning consumers of the dangers of investment propositions received on search engines."

Burton added: "As we move into an environment characterised by considerable economic uncertainty, and one in which generating a return on your savings will be a significant challenge, the worry is that we could be witnessing a golden age of investment scams without government action to make it harder for scammers to operate online."

Author spotlight

Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.