Investment fraud: 6 tips to help you spot the signs

If you ever come across an investment or business opportunity that offers a huge payoff with zero risks, be careful. When things seem too good to be true, they usually are. Here are some tips you can use to help protect yourself from investment fraud.

An investment scam is a type of fraud that makes it seem like you could make a lot of money by investing in a product or service that's illegal, extremely risky or may not even exist. Scammers often use manipulative techniques to get you to invest, and they can be very convincing.

1. Be on the lookout for scams

The techniques used in investment fraud are often similar to those used for other types of scams. If it's an unsolicited offer (over the phone, text message, email, etc.), a once in a lifetime opportunity, you're being pressured to make a fast decision (sense of urgency) or asked to pay fees or disclose personal or financial information in advance, consider that someone might be trying to trigger an emotional response in hopes that you'll let down your guard. Taking some time to think about it will give you a chance to make a more rational decision.  

For instance, always be suspicious of emails that look like they're from a recognized company or financial institution if the message was sent via a free messaging service or an address that's similar to the one used by the business, only with a few extra characters. All of these signs point to the email being 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, you can check the AMF's Register of firms and individuals authorized to practice to verify the legitimacy of the person who contacted you. 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.. These standards will help you estimate how different investment types are likely to perform over the long term. Recommended annual returns for projections made in 2024 typically range between 2.4% and 8.3%, depending on the investment. For example, if you're promised a 5% return per month, that's equal to an annualized return of 79.5%, meaning that a $1,000 investment would be worth $1,795 after 12 months. Offers like these are major red flags. These kinds are returns are extremely unlikely, and most investments don't make that much. Take a step back and trust your judgment. When in doubt, talk to your Desjardins advisor. They can weigh in with their opinion and answer any questions you may have.

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

Only entrust your money to a recognized company or institution that uses cheques or pre-authorized debits, since those transactions can be traced. 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).