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Can you identify an investment scam?

With investment scams costing Australians hundreds of millions of dollars each year, new COBA research reveals the ways both novice and experienced investors may fall vulnerable. Thankfully, there are several ways to pick a scam.

New investors think they can spot an investment scam as easily as seasoned investors, but they’re also more likely to behave in ways that could increase their risk, new research shows.

A survey commissioned by the Customer Owned Banking Association (COBA) showed more than four-in-five investors were confident they could identify an investment scam, regardless of their level of experience.

However, less experienced investors were also twice as likely to use online forums and social media as a trusted source to verify an investment opportunity. COBA’s financial fraud team said this can be a risky strategy with fraudsters frequenting these sites too and sharing illegitimate information.

Inexperienced investors also saw cryptocurrency as lower risk, despite Scamwatch statistics showing more than $113 million has been lost to phony cryptocurrency schemes already this year.

Almost half of the surveyed new investors invest in cryptocurrencies, prompting warnings from COBA about the need to double-check unregulated investments like crypto are genuine.


Experienced investors at risk too

While experienced investors were more likely to be wary of cryptocurrency and to check in with the ACCC and ASIC about an investment’s legitimacy, they may still be vulnerable to some types of investment scams, the research showed.

Most experienced investors said they thought bonds were low risk, despite millions of dollars being lost to imposter bond scams last year, according to the Australian Competition and Consumer Commission’s (ACCC) Scamwatch.


Read more about Scams Awareness Week 2022.


The cost of investment scams

In the past year, scammers have become far more sophisticated in the tactics they use, with more than $700m being lost to investment scams in 2021, data from the ACCC shows.

Losing money to a scam can be devastating, with most investors admitting losing less than $5000 would have a serious financial impact.


Ways to avoid being scammed

  • Build a network of reputable sources – including the ACCC’s Scamwatch, ASIC, and your financial adviser, if you have one. Use these sources to check if investments are legitimate, including unsolicited investment opportunities or investments you have found via internet search engines.
  • Watch for imposters – scammers sometimes try to impersonate reputable sources, so look closely at URLs, don’t click on links unless you’re certain who it is from, and don’t be afraid to make a phone call to confirm a message is from an authentic source.
  • Use extra caution with unregulated investments – when a market isn’t regulated (like cryptocurrency), it can be easier for fraudsters to imitate real investment opportunities.
  • Use the “is it too good to be true?” test – is someone is promising a huge return for little risk? It can pay to use extra caution in these instances. If it sounds too good to be true, it usually is.


Key facts:

  • Men were more confident than women in their ability to spot investment scams (83 per cent vs. 78 per cent).
  • Most investors would be “seriously financially impacted” by losing less than $5000 to an investment scam (52 per cent).
  • 69 per cent of experienced investors think bond investments pose a low risk for scams.


Source: COBA Investment scam research, 2022.

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