How to avoid investment fraudsters

Nature never ceases to amaze me. A few years ago, during winter, our Border collie passed a little too close to our heater at home, and out of sheer curiosity about this heat-emitting wonder, walked away with a burnt snout. To this day, she avoids the heater by a few meters, even when it’s switched off, because she has learnt from her mistake.

Unfortunately, it seems as though many South Africans tend to forget these types of events too quickly and they often walk into the exact same trap again, when promised ‘quick and easy returns over the short term’ by deceiving individuals.  Even when they know that it sounds too good to be true, the promise of a ‘brighter’ future seems too good to resist and unlike our Border Collie who learnt her lesson, they run the risk of getting burnt again.In the last decade names like Fidentia, Herman Pretorius, Leaderguard, King Group and Sharemax haven’t only been synonymous with fraud, but have also been responsible for the loss of millions in hard-earned money. Students were forced to give up their studies, retirements were postponed, peace of mind was destroyed and some even committed suicide, to name only a few of the horrid consequences for the victims of these fraudsters.

My aim this week isn’t to turn back time or to determine who should be blamed for what, but rather to tell you as an investor how you can avoid these traps by learning from your own mistakes, as well as from those of others. I offer you five questions you should ask yourself before entering into any type of investment agreement in future:

Is this company approved by the Financial Services Conduct Authority (FSCA)?

Before you invest, contact the FSCA either telephonically, or by visiting their website to make absolutely sure that the investment company and its advisers are approved by the FSCA to manage the products related to your investment. Avoid the company if it is not an FSCA-approved provider, or if approval has been suspended.

What do I know about this company’s history?

Do proper research on the company and familiarise yourself with its management and the way they function. Contact references or make use of the internet to determine if anyone has ever been misled by the company or any of its advisers. If the proposed scheme or investment seems similar to a previous fraudulent scam, walk away. It’s simply not worth the risk.

How much am I investing and how much will I earn?

Be wary of promises of high returns over a short period of time. Chances are it’s either a scam or involves something illegal. Always remember the old saying: If it sounds too good to be true, it most probably is.

When will get my earnings?

The moment you are told that you will be made rich within a few months or even within days, be extremely careful. Unless you win the ‘Lotto’, I have yet to find a legal investment that can guarantee you any form of immediate fortune. Come to think of it, be wary of the word ‘guaranteed’ when it comes to investments in general.

How will I earn it?

Ensure that you know exactly how your money will be invested. If you don’t understand the process and your adviser cannot explain it to you in a clear and concise manner, be careful. Remember, it is your money and you need to understand how it will be invested. Do not hesitate to reject a proposal or to request an alternative investment proposal if you feel uncomfortable with any aspect involved in it.

Always use good judgement when making choices that can affect your future. Don’t let a testimonial by some ‘important’ or a famous person be the deciding factor in why you choose a particular investment company.

In conclusion, I recommend that investors always seek the advice of a recognised, FSCA-approved financial adviser before making any big investment decision. I know that ‘extra’ adviser fee may seem like a waste of money, but these advisers are experts in their respective fields and they possess the ability to identify and prevent mistakes. Learn from the mistakes people have made in the past and remember: The choice is always yours.

The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice.  This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for actions taken based on the information contained in this blog. Since individual needs and risk profiles differ, it is always advisable to consult a qualified financial adviser before taking action.


Schalk Louw
As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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