There continues to be an alarming rise in financial scams since the first coronavirus lockdown. Here’s what you need to know about the different types of scam, and how to defend yourself.
In an effort to get around increased security measures from banks and other financial services firms, scammers are developing increasingly clever ways to persuade people to part with their personal details and even hand over their money themselves.
One of the most popular ways is through something called ‘push payment fraud’. This occurs when the fraudster manages to convince the victim in ‘real-time’ to make a payment or transfer money from their bank account into another account controlled by the fraudster.
Here’s how this particular scam works. You receive a friendly phone call from someone claiming to represent your bank, HMRC, or a utility provider. The caller knows personal details about you, and the number they call from appears to be genuine (it could be the number on the back of your debit card, for example). The caller will tell you there has been some suspicious activity on your bank account – which means you need to open a new account and transfer all your money into it immediately.
In most instances, the first part of the fraud has already happened. Victims might have had their post intercepted or clicked on a ‘phishing’ email that handed over some of their financial or personal details to the scammer. That’s why they already know so much about you and your finances during the phone conversation.
A cunning confidence trick
The call is designed to make you feel anxious, or that you will be in trouble if you don’t take immediate action. It’s a psychological ploy, backed up with modern technology that convinces people the call is coming from a legitimate and trustworthy source. Before you know it, you’ve willingly handed over all of your money directly into the scammer’s account.
These impersonation scams were particularly prevalent during the early months of lockdown. Perhaps people were already more vulnerable than usual, had added money worries or scammers simply had more time to phish for people’s details and follow up with the impersonation part of the scam.
Investors need to be careful too
There are other impersonation scams out there to be aware of. The Financial Conduct Authority (FCA) has been warning people about the rise of “clone firms”, where criminals copy the names, websites, and literature from established investment companies and use them to target unsuspecting victims on sponsored links on search engines and through social media. Fraudsters will also ‘cold call’ investors directly, claiming to be from a company that the victim already has an investment with. In some instances, fraudsters have even set up email addresses in the names of actual staff members at investment management firms they are pretending to represent.
The fraudster will quickly gain the confidence of the investor and persuade them to make new investments or transfer existing investments. These new investments eventually turn out to be wildly over-priced, impossible to trade or they don’t even exist. Many investors only realise they have been conned when they contact the authentic investment firm to chase payments that haven’t arrived.
Pension freedoms have opened the door to fraudsters
Pensions have also become a target for criminal scams, especially since the introduction of pension freedoms that mean people can access their pensions early. People now have far more flexibility in what they do with their pension pot. For the fraudsters, this is an opportunity to get their hands on previously untapped wealth, and to rob people of their life savings.
The FCA and The Pensions Regulator estimated that more than £30 million had been lost in pension scams since 2017. Victims of pension scams, where fraudsters have managed to persuade the pension owner to transfer their pension to a fraudulent pension scheme, have lost an average of £91,000, and some unlucky victims have been robbed of more than £1 million of their hard-earned pension.
What can you do to protect yourself?
There are some common-sense steps you can take to help defend yourself against financial scammers. Here are some of the most useful ones to remember:
- Don’t automatically trust an unexpected communication from your bank, HMRC or a company you’ve done business with, and don’t ‘confirm’ your personal details or agree to transfer any money.
- Pay alert to messages from your bank or other service provider that ask you to click on an email link – they could be phishing for your personal details.
- If you’ve been called by someone claiming to be from your bank, end the call and then phone the official bank number from a different phone (scammers can keep the line open if you call back from the same phone).
- Reject ‘out of the blue’ investment offers, and remember that if something sounds too good to be true, it usually is.
- Be wary of cold callers trying to flatter you, pressure you, or scare you. Don’t allow yourself to feel rushed into making a financial decision.
- Trust your instinct. If something feels suspicious, report it.
- Always get professional financial advice between switching investments or making changes to your pension arrangements.
The Citizens Advice Bureau has repeatedly warned that the most vulnerable people are often at greater risk of being contacted by a scammer. But the reality is that these are sophisticated, ruthless criminals who go to great lengths to present themselves as genuine. It’s easy to be deceived, especially when the scammers know so much about you and are preying on your personal fears. But knowing how the fraudsters operate is an important first step to ensuring you don’t give them what they want.
You can report potential scams by calling ActionFraud on 0300 123 2040, or visiting actionfraud.police.co.uk
If you are interested in discussing the above with one of our experienced financial planners at FAS, please get in touch here.
This content is for information purposes only. It does not constitute investment advice or financial advice.