how to recognize investment scams
Investing & Retirement

How to Recognize Investment Scams

January 18, 2024 - Daniel Dreier

Learn how to recognize investment scams, from sketchy online trading platforms to Tiktok blurbs, social media posts, and advertisements.

From Youtubers and Tiktokers telling us how to get rich quick, to online advertisements for genuine-looking online trading platforms that suddenly become very sketchy when you try to make a withdrawal, the Internet is crawling with investment scams.

Here, moneyland.ch lists clear red flags to watch out for:

Red flag 1: Unrealistic returns

Promises of very high returns are probably the biggest tell-tale sign of an investment scam. A look at the historical performance of Swiss stock indexes shows that over long terms, an average return of between 4 and 5 percent per year is realistic without taking on excessive amounts of risk. While individual stocks or commodities may end up performing much better than that, there is no way to know in advance which assets will gain value and which will lose value.

Red flag 2: Short investment terms

Scammers often play the “get rich quick” card to lure victims who are not content with slow, long-term wealth building. For that reason, you should be cautious when an investment offer promises fast returns.

Fixed-income assets like bonds and medium-term notes generally have terms of at least one year. For stocks, an investment term of at least 10 years or longer is recommended, based on historical Swiss stock market performance data

While doubling your money in a year or even a month with little effort on your part may be appealing, it simply is not realistic to achieve those kinds of returns without taking on huge amounts of risk.

Red flag 3: No risk

Every investment comes with a certain amount of risk. The rule of thumb is that the higher the potential returns are, the higher the investment risk is. While some low-return investment vehicles – like savings accounts and medium-term notes – come with a low risk of loss, the chance of losing money in the event of a bank bankruptcy cannot be completely ruled out.

Legitimate investment services will always have a clear notice outlining the risks associated with investing.

Red flag 4: Unregulated investment vehicles

Be skeptical if an investment offer is associated with unregulated assets like over-the-counter stocks or bonds, cryptocurrencies, blockchain assets like non-fungible tokens (NFTs), and initial coin offerings (ICOs). 

Unregulated assets are not subject to the same investor-protection measures as regulated assets like exchange-listed stocks and bonds, and exchange-traded funds (ETFs).

Red flag 5: “Insider” deals

Offers to invest in an “insider” deal that is not available to the general public should always be taken with caution. This includes offers to buy shares in companies ahead of their initial public offering (IPO), and offers to invest in any commodities, fine art, or other assets that are not publicly available to investors as a whole.

Red flag 6: Pushing specific assets

Serious investment service providers will only advertise the investment services they provide, such as stock brokerage or asset management. They will not heavily promote specific stocks, commodities, cryptocurrencies, NFTs, or other individual assets. 

If a purported investment service is pushing a specific asset, there is a high chance that it is a scam (a pump-and-dump scam, for example). In a pump-and-dump scam, the scammer buys an asset cheaply and then promotes it to gullible investors with the aim of driving up the price so they can sell it at a profit.

Red flag 7: Unsolicited offers

Good investment opportunities do not need aggressive marketing. If you receive emails, messages, or even phone calls from supposed investment service providers without your having asked to be contacted, there is a high chance that it is an investment scam.

Red flag 8: Deadlines

A favorite tactic of fraudsters is to create a sense of urgency. Reputable banks and investment advisors will never pressure you to invest. If a purported investment service mentions deadlines or in any other way tries to put you under time pressure, there is a very high chance that it is a scam.

Red flag 9: Unregulated investment platforms

Many fraudulent online trading platforms lure investors by appearing to be legitimate. Some put substantial effort into creating professional-looking websites and many even have functional trading interfaces with a look and feel similar to those of legitimate online trading platforms. Some use names, logos, and website URLs that are very similar to those of reputable brokers. For this reason, it is very important that you check whether a trading platform is regulated before you open an account and transfer money.

All of the investment service providers included in the investment comparisons on moneyland.ch are licensed and regulated in Switzerland. Additionally, you can find out whether an investment firm is regulated in Switzerland using the SRO member search on the Finma Website. Investment services that are supervised by ESMA, the European Union (EU) regulator for securities and markets, can be found here. Those regulated by the United Kingdom’s Financial Conduct Authority (FCA) can be found here. The Investment Advisor Public Disclosure lists US investment firms and shows whether or not they are registered.

Be aware that a company can be listed in a country’s commercial register but not be regulated. The reason for that is that many countries do not have any supervisory authorities for financial markets. For Swiss investors, it is recommended to stick to firms that are regulated in Switzerland. Foreign trading platforms that are regulated in the EU, the UK, and the US are also relatively secure.

Red flag 10: Lack of transparency

A legitimate bank or investment firm will provide clear information about itself. This should include the physical addresses and phone numbers of its offices. Ideally, the firm’s website should include links to the commercial register in which it is listed and the register of the supervisory body that regulates it. It should also provide information about the firm’s management so that you can check the business and legal records of key employees. 

Be suspicious of any service providers that are not completely transparent.

Red flag 11: Upfront fees and charges

Legitimate investment firms only charge you fees after they provide a service. Avoid service providers that ask you to pay any fees for their services in advance.

Red flag 12: Trusted celebrities, brands, and media

Scammers often try to create an emotional connection by misusing images and videos of well-known investors, businessmen, athletes, and pop culture icons in their advertising. Household brands are also commonly misappropriated for this purpose. Often, scammers try to replicate or alter trusted newspapers and other media outlets to create fake news related to their “investment” offer.

More on this topic:
Compare trading accounts from licensed Swiss banks
How to recognize loan scams
What is a Ponzi scheme?
How to protect your money from phishing

Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.
Trading platforms

Brokers with low fees

Swiss Trading Platform

Swissquote

  • Leading Swiss online bank with FINMA license

  • Free multicurrency account & low commissions

  • Access to more than 3 million products (shares, ETFs, crypto and more)

Swiss Trading Platform

Cornèrtrader Special Offer

  • Special offer: particularly favorable conditions for Moneyland users

  • No custody account fees for shares

  • Swiss online bank with FINMA license

Swiss Broker

Saxo Bank Special Offer

  • Special offer: Reimbursement of brokerage fees up to CHF 200 for 90 days

  • Licensed Swiss bank (FINMA)

  • Free expert research and trading signals

Deal of the Day
×
Swiss Trading Platform

Swissquote

Leading Swiss online bank with FINMA license

Request now without obligation

Choice of digital asset managers

Robo Advisor

Findependent

  • Up to CHF 2000 free of charge

  • Low-cost ETF

  • Sustainable investments

Digital Private Banking

Managed by Alpian

  • Unlimited access to wealth advisor

  • No additional bank account charges

  • Customized portfolios

Digital asset management

Selma

  • Digital financial assistant

  • Free investment plan

  • Free test account

Robo advisor

True Wealth

  • Free test account

  • Flat fee: 0.5% - 0.25%

  • Inexpensive ETF

Robo advisor

Bank CIC cleverinvest

  • Digital asset manager

  • Flat fee of 0.5%

  • Already from CHF 1000

Request now without obligation

Choice of digital asset managers

Robo Advisor

Findependent

  • Up to CHF 2000 free of charge

  • Low-cost ETF

  • Sustainable investments

Digital Private Banking

Managed by Alpian

  • Unlimited access to wealth advisor

  • No additional bank account charges

  • Customized portfolios

Digital asset management

Selma

  • Digital financial assistant

  • Free investment plan

  • Free test account

Robo advisor

True Wealth

  • Free test account

  • Flat fee: 0.5% - 0.25%

  • Inexpensive ETF

Robo advisor

Bank CIC cleverinvest

  • Digital asset manager

  • Flat fee of 0.5%

  • Already from CHF 1000

Request now without obligation

Swiss wealth managers

Digital Private Banking

Managed by Alpian

  • Unlimited access to wealth advisor

  • No additional bank account charges

  • Customized portfolios

Robo advisor

Bank CIC cleverinvest

  • Digital asset manager

  • Flat fee of 0.5%

  • Already from CHF 1000

Online wealth management

PostFinance E-Investment Management

  • Digital wealth management

  • From CHF 5000

  • Direct opening possible

Online trading brokers in comparison

Find the cheapest online broker now

Compare now
Free subscription

Sign up for the free newsletter

Subscribe now
more than 3 million pieces of data

Find all comparisons here

Go to comparisons