No such thing as a free lunch.
Covid-19 has rocked our economy and thrown many industries into turmoil. This has left almost everyone under some form of financial pressure. The current situation is an ideal breeding ground for financial scammers, who take advantage of those looking to improve their financial lives quickly. The irony here is that often financial scams spread in a similar pattern to viruses. They rely on one person ‘selling’ the ‘awesome opportunity’ to a group of their friends and family. Even if you don’t think you are at risk, just like Covid-19, you need to help be a part of the solution. Help spread tips and tricks on how to stay safe, be vigilant and engage in constructive conversation to try and change people’s risky behaviour.
Wait! Before you flick back to News24 because you’re thinking to yourself, “I know what a scam looks like” “I wouldn’t get caught by one of these things” “I’m not that dumb”, bear this in mind… It’s these people’s job to create these scams and it’s how they make their living. Sure some of them are rubbish and scams are obvious, but there is a group of them that are very good at what they do. Bernie Madoff, who’s story is excellently portraited in the podcast series Ponzi Supernova, was a master of deception and managed to con some of the smartest financial professionals on Wall Street to ‘invest’ in his scheme. No one is immune!
So, let’s dive into how we can stop the spread of these scams!
Here are some basic definitions
There are many different types of scams, we’ve broken them into 3 main categories:
Ponzies
“These schemes depend on enticing a steady flow of investors, whose money goes to pay off promises made to earlier investors. Any such scheme will inevitably collapse, as it is impossible to find enough new investors to keep the scheme going.” South African Reserve Bank
Pyramids
“A Pyramid scheme is one in which you are required to be an active participant. After an initial entry payment has been made, you would be required to recruit other members before earning a return on the original ‘investment’. The more recruits, the greater the return!” South African Reserve Bank
Straight up scams
These are generally a blatant request for money to help do something that will result in a big payout which you will then get a slice of. “I am the lost son of Nelson Mandela and I just need R50 000.00 to win a legal battle that will result in me receiving R10 000 0000.00 in royalties. If you help me, I will share half of the royalties with you.”
“But I’ve done my research and it looks legit”
So we’ve all had a friend or family member who responds with that line when questioned about their new “awesome opportunity”. Heck, we might have even said it ourselves! So let’s cut to the chase and get to how best to figure out if a scammer is trying to con you or someone close to you. And before you say, “wow, looks like a mission to do this research…” Do you know what’s more of a mission - losing a whole lot of your savings to scammers!
Are you buying something or “investing/saving” in something.
If you think you are buying something, then make sure you are clear what you are buying, when it will arrive and what the return policies are. We’re not going to get in the weeds on scams related to purchases.
If you think you are investing or saving in something then you need to think about the points below.
If it sounds too good to be true, it probably is.
That is certainly true but it can sometimes be hard to work out what is “too good”, even if you know a lot about finance. So we’d recommend not relying on this approach and rather try to stick to the facts. Remember Bernie!
Be aware of confirmation bias.
We are hard-wired to search for information that supports our current beliefs. This fact, coupled with our desire not to miss out on a good deal puts us in a vulnerable position, which the scammers know. That means that when you are researching a new opportunity, you will need to counterbalance your bias by spending more time checking for negative aspect than confirming the positive ones.
Are they an authorized financial services Provider?
It’s easy to find this out, go to the Financial Sector Conduct Authority website and search for them. You can search using their name or something called their FSP number. In South Africa, every company that handles people’s money (savings, investing, financial advice, credit) has to be registered with the Financial Sector Conduct Authority.
If they don’t come up on that search, then you are likely dealing with an unregistered financial services company. Our advice is to steer clear of unregistered entities because they are not being monitored or evaluated by the Financial Sector Conduct Authority.
Are they a registered company?
You can use the Companies and Intellectual Property Commission website to search for the company quickly.
If they don’t exist… then that is another red flag and a cause for concern.
Do they come up on scam tracking websites?
scambuster.co.za is a great website that documents many of the scams going on at the moment.
Do they come up in a simple google search “company A scam”.
Get in touch with a professional
If you are still feeling remotely unsure about this “opportunity” get in touch with someone you trust in the financial services industry. We are always happy to help, send us an email info@southerncharter.co.za
How to deal with people you think are caught up in a scam.
Keep the conversation going. You don’t want to go in guns blazing because the most likely thing is that the person will get defensive and stop talking to you!
Don’t try and change their mind in one sitting. It often takes people a few days or weeks to slowly shift their perception; it’s tough to rush this process without getting into a serious conflict situation and the person shutting off to you.
Remember to be kind. They think they are getting a great deal, so if it turns out they are being scammed it is going to be embarrassing for them to admit.
Stay safe and look after each other.
