Investment fraud: 6 tips to help you spot the signs

If you see an investment or business opportunity that offers a huge payoff with zero risks, you should be careful—when things look too good to be true, they usually are. Here are some tips you can use to help protect yourself from investment fraud.

1. Be on the lookout for scams

The techniques used in investment fraud are often similar to those used for other types of scams. Scammers may try to play on your emotions or catch you off guard. So, for example, they might approach you with an unsolicited offer or a once-in-a-lifetime opportunity that requires you to act within a very short timeframe. If that happens, don’t rush in! Give yourself time to think and make an informed decision.

If you receive an offer by email that seems to come from a recognized company or financial institution, take a close look: Does the message contain a lot of typos or grammatical errors? Is the email address from a free email or messaging service? Does the address contain any extra characters? These might be a clue that it’s a phishing attempt.

2. Make sure that the person or company offering the investments is licensed

Professionals must be registered with regulatory authorities in order to provide financial services or sell investment products. By taking the time to check who you’re dealing with, you can avoid serious problems down the road. In Quebec, only professionals and companies listed on the AMF registers are authorized to sell investment products or give advice. In Ontario, professionals must be registered with the Ontario Securities Commission (OSC).

3. Beware of investments with no risks and high returns

Does this investment promise high returns and zero risks? Don’t believe it! Investment products with high return potential are, in general, riskier. They’re usually offered to investors who are comfortable with risk and have an investment horizon that’s longer than 10 years. And in contrast, investments with less risk tend to have smaller annual returns. This includes investments with deposit protection and less volatile bonds. There’s no such thing as an investment product with high returns and no risk.

And let’s take a look at what a reasonable projected return might be. Every year, the Institut québécois de planification financière (IQPF - Quebec’s financial planning institute) and the FP Canada Standards Council publish the Projection Assumption Guidelines This link will open in a new window.. For 2023, they recommend using annual returns of between 2.3% and 7.4% in calculations, depending on the investment type. So if someone offers you an investment with gains of 5% per month… that means that for every $1,000 you invest, you’d get back $1,795 in just 12 months. That corresponds to an annual return of 79.5%, which is completely unrealistic. Take a step back and trust your judgment. If you have any doubts, get in touch with your Desjardins advisor. They can give you a second opinion and answer your questions.

4. Stay cautious, even if the offer comes from someone you know

A lot of fraud strategies rely on word of mouth. That’s how pyramid schemes and Ponzi schemes work, since they only generate money by luring in new victims. Once they can’t find anyone new to give them money, or if a large number of investors try to get their money out at the same time, the whole thing falls apart. If someone you know tells you that they have an incredible investment opportunity for you, there’s a chance that they’ve fallen for a scheme and don’t even know it! And if they contact you over social media, call them to make sure that their account hasn’t been hacked.

5. Ask for details in writing

Legitimate financial products should come with a complete, detailed product sheet that includes:

• Investment allocation
• Risk level
• Past annual returns
• Description of fees

If this is a business opportunity or a franchise, they should provide a business plan that includes:

• The business profile and model Its directors
• A market study
• Realistic financial forecasts

If, however, the opportunity is described as “too complicated to explain” or has a strategy that needs to be kept secret or can’t be revealed yet, it’s probably a way to distract you from the fact that there isn’t any detailed information.

6. Make your money easy to track

Your money should go to a registered company or financial institution in a way that can be tracked, such as a pre-authorized debit or cheque written out to the company. Scammers often ask for cash, cryptocurrency or a cheque made out to an individual, since those methods are harder to track. You should also be careful when investing abroad: if there is a problem, it can be difficult—or even impossible—to find out where your money has gone.

You can also contact us if you’d like more support. Just call us at 1-800-CAISSES (1-800-224-7737).