How to avoid investment scams in Australia

Investment scams cost Australians hundreds of millions of dollars each year. New research from the Customer Owned Banking Association (COBA) reveals the ways both novice and experienced investors may fall vulnerable to investment scams. So, how do you avoid investment scams in Australia?

How to avoid investment scams

What is an investment scam?

Investment scams prey on your trust in your online connections and desire to grow your wealth. Some scams are ‘allegedly’ promoted by celebrities or by your social media friends and ask you to invest into a wealth-growth opportunity, such as Cryptocurrency or Gold. Most of these promotions are too good to be true, and are fabricated with false endorsements to persuade you into handing over money that you won’t see again.

Common types of investment scams include cryptocurrency scams, unsolicited contact about investing, romance baiting, celebrity endorsement scams and superannuation scams.

How much do investment scams cost Australians? 

Scammers are becoming far more sophisticated in the tactics they use, with more than $700m lost to investment scams in 2021, data from the ACCC shows.  Losing money to a scam can be devastating. Most investors admit that losing less than $5000 would have a serious financial impact on them and their families.

How confident are Australians in identifying investment scams?

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 twice as likely to use online forums and social media as a trusted source to verify an investment opportunity. This is a risky strategy as fraudsters and ‘finfluencers’ frequent these sites too and can easily share illegitimate information. Finfluencers are social media influencers that provide trading, investment or financial advice, which they are not always qualified to do so.

Inexperienced investors also saw cryptocurrency as lower risk, with almost half of the surveyed new investors sharing that they invest in cryptocurrencies. However, cryptocurrency is an area commonly targeted by scammers, with Scamwatch statistics showing more than $113 million has been lost to phoney cryptocurrency schemes between 1 January 2022 and 1 May 2022.

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. 

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

Ways to avoid being scammed

Check before you invest

Always check if a financial advisor holds an Australian Financial Services Licence by searching the ASIC website. 

Check ASIC’s list of companies you should not deal with. If the company that contacted you is on the list – do not deal with them. Even if they are not on this list, it could still be a scam. The MoneySmart website also contains information about how to avoid investment scams.

Do your homework on the investment by running a company search online for any reviews, complaints or scams.

Look out for red flags

  • Promise of low risks with high returns – if it looks too good to be true, it probably is.
  • You are contacted out of the blue – receiving a call, email or message on social media from someone offering you unsolicited advice on investments.
  • High-pressure tactics – repeatedly being contacted by someone telling you to act quickly and invest or you will miss out. 
  • Remember you may have less protections with cryptocurrency investments.
  • Someone you haven’t met in person offers you investment advice – never take investment advice from someone you meet on social media or a dating app.
  • Use of a celebrity or high profile person as an endorsement – these are often fake, and their name and image are used without the individual’s permission.
  • You are asked to deposit funds into different accounts for each transaction – scammers may claim this is for security reasons or because they are an international company.

Protect yourself

Get professional advice.  This could be independent legal advice, or financial advice from a financial advisor registered with ASIC.

If it is cryptocurrency investment, always speak with a qualified legal and/or financial adviser first. 

Do your research and do not let anyone pressure you into an investment. Never commit to anything on the spot.

Share this article

Share this information with your family and friends and help protect them from falling victim to investment scams. You can also download and share our About Investment Scams Guide (PDF).

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