How Phone Investment Schemes Work?

Advices for Australians - Get rich quick schemes

 

Imagine the shame and guilt you'd feel at losing money you'd saved for your dreams or retirement. By all means try to make your savings work hard and grow fast, but keep your eyes open to the risks. If it sounds too good to be true, you'll probably end up the loser.

Phone investment scams

Australians have lost at least $400 million to telephone investment fraud. So beware of phone calls out of the blue selling investments, financial advice and financial products. Cold calling about financial products or services is illegal if the caller does not have an Australian financial services licence from ASIC.

What is cold calling?

Cold calling is simply a sales call out of the blue you did not ask for.
Cold calling about financial products or services is illegal without an Australian financial services licence. Overseas callers still require an Australian licence.

Rates of return and risk

We all dream of high returns on our investments. But some investors' dreams become nightmares after they lend or deposit their savings in schemes offering unrealistically high returns.

As a guide, anything offering more than a 2% return above established, like products is considered 'high'. And that generally means increased risk. So before you commit your life savings to that seemingly lucrative, 'sure-fire' investment, it pays to ask yourself some serious questions.

Get started by checking out the links below. Additionally, try FIDO's risk and return calculator and compound interest calculator.

Four most common investment options
Growth, balanced, capital stable and capital guaranteed.

What's right for you?

- Negative returns: the dark side of investments People invest because they expect to make money, but negative returns are always a risk.

- The high life - FAQs
Ask yourself these basic questions about pie-in-the-sky promises

- Spotting what's too good to be true
Follow the rule of 72

- Like 10% returns per month?
Who wouldn't. Beware the classic Ponzi scheme

- What history shows
See a century of investment returns:
the events might surprise you

- What's the 'average' rate of return?
What do you mean by 'average'? A tale of two funds

- Past performance figures are not indicative of future returns

Ask the right questions

If someone cold calls you offering financial services or products, protect yourself by asking these questions:

1. What is your name, address and phone number?

2. Do you hold an Australian financial services licence?

3. What is the name of the company holding the licence?

4. What is the licence number?

5. What is the licence holder's address?
- If the caller answers your questions
- Make a note of the details so you can check the information after the call.
- Before dealing with them any further, do these quick safety checks.

- If the caller avoids your questions, or doesn't have a licence
- Do not deal with them. Hang up.

- If they claim they don't need a licence because:
• They are based overseas
Hang up. Anyone ringing a person in Australia and offering financial advice or products must be licensed in Australia to do so.

• They are selling real estate
Ask if they hold a real estate agent's licence. Real estate agents do not have to have a financial services licence, so you must judge for yourself if you want to hear more.

• They are not selling or advising but 'just inviting you to an information session'.
You will be safer refusing the invitation.

Safety checks

1. Is the organisation on FIDO's list of known unlicensed overseas callers?
If they are on this list do not deal with them.

2. Is their name on FIDO's list of Australian financial service licence holders?
- If they are not on the list
- Do not deal with them. If you need help or you're not sure, contact us to check the list for you. Call Infoline on 1300 300 630.

- If they are on the list
- Decide if you want to deal with them and if their offer suits you.

Why does an Australian financial services licence matter?

To protect investors and consumers, anyone who sells or advises on financial products must get a licence from ASIC (or be employed by, or authorised to represent, someone who holds a licence).

The licensing system gives you important rights that protect you and your money. If you deal with unlicensed advisers or brokers you risk falling victim to a scam and, especially if they are overseas-based, you may:

• lose the protection offered by Australian law
• be unable to recover your money.

In a nutshell, the law says licence holders must:

• deal with you efficiently, honestly and fairly
• meet certain professional standards
• comply with financial services laws that are enforced by ASIC
• belong to an independent complaints scheme that can handle your complaint free of charge.

Meeting your licensed financial adviser
- In practice, companies usually hold the licence, and the financial adviser you deal with will be an employee or authorised representative of a licence holder. The licence holder must take full responsibility for the conduct of its employees and representatives.

- Every licensed adviser and authorised representative is named on a public register. You can search these registers. However the search will not tell you if someone is an employee of a licensed adviser. If in doubt, check with the licence holder.

Get a financial services guide (FSG)
- A licence holder must give you a financial services guide that tells you about the services they offer, how they charge and how they handle customer complaints.

- You are entitled to see a copy of the licence. Some licences restrict advisers to a particular product(s) or area of work. This ensures that they do not get involved in advising on matters outside their expertise.

- Some licensed advisers can offer you a full range of services from financial planning to stockbroking.

- Others can only offer you a limited range of products. Perhaps they specialise in a restricted range of investments, or perhaps they can offer products only from one organisation, for example, from a single bank.

How licensed financial advisers must operate

A licensed business must maintain systems and procedures to deal with your affairs in a business like way. That includes carrying out your instructions promptly, keeping track of your money and reporting back to you.

The licensee must tell you the truth about the products and services they offer. They must give you the information you need to make your own decisions and explain any hidden catches, pitfalls or other features of a product that would influence your decision. They must also tell you about commissions they receive that could influence their recommendations.

A licensed financial adviser can give you general advice or personal advice. Personal advice must be based on your personal needs and circumstances. The best advisers will bend over backwards to make sure you fully understand what they recommend and why.

Personal advice must be given to you in a written document called a statement of advice (SOA). The SOA must explain the basis for that advice, eg how your objectives, financial situation and needs have been taken into account.

You have to decide if their recommendations really suit you and if the investment is worth the risk. Take your time. Ask questions about anything that's not clear. You may accept or reject any recommendations, or seek another opinion.

What if you are not satisfied?

You have a right to complain and to have your complaint dealt with seriously and fairly.

You may feel embarrassed about complaining. This is natural. Put your complaint firmly and politely. Making a complaint when you are not satisfied will clear the air, and may uncover a problem that needs attention.

Tell the adviser that you wish to complain and that you want a reply in writing from the person authorised to deal with customer complaints. Every licensee must have a proper system to investigate complaints. Unless the matter can be cleared up simply, you will get a written reply to your complaint.

Licensed advisers must be a member of an independent complaints scheme approved by ASIC. If the licensee has not dealt properly with your problem, you have the right to go to the complaints scheme. You can also use the scheme if the company fails to reply. The complaints scheme is free for consumers.

At any time you may report misconduct to us directly. Contact our Infoline on 1300 300 630 or e-mail us at infoline@asic.gov.au especially if you suspect fraud or dishonesty.

Have you been stung?

For financial products and services, contact ASIC's Infoline at infoline@asic.gov.au or 1300 300 630 if the scheme involves shares or investments.

Illegal investments list

1 July 2003 to 30 August 2007
By 'illegal investments' we mean investments and investment schemes whose managers illegally failed to hold an Australian Financial Services Licence, or otherwise failed to comply with the fundraising provisions of the Corporations Act and/or investment schemes that the managers illegally failed to register with ASIC.

This list covers only those investments where ASIC has taken action in the courts, obtained court orders and when those involved were identified in court or have otherwise publicly agreed with ASIC that an investment or scheme does not comply with the law.

Undecided matters before the courts, and action taken before or after the dates above may not be included. Also, ASIC is not necessarily aware of, or able to pursue, every unlawful investment scheme.

If you are thinking of investing money in any scheme where your investment will be managed by another company or person, check the manager holds an Australian Financial Services Licence.

Never give money to unlicensed operators. To protect you, schemes offered to the general public also usually have to be registered as a managed investment scheme (unless exempted).

Companies and investment schemes

Before you to join an investment scheme, check to see it is operating legally.

Four safety checks

1 Search our database to see if the company managing your investment holds an Australian financial services (AFS) licence.

2 Search our database to see if this scheme is registered with ASIC.

3 Check FIDO's list of illegal investments

4 Ask the seller for their Product Disclosure Statement. Schemes must have a product disclosure statement (PDS). This document must give enough information about the scheme for you or your adviser to make an informed decision. More information about product disclosure statements.

For listed managed investments only (that is investments that can be traded on a financial market), search now to check if a PDS has been lodged with ASIC.

What the law requires

A company which sells you such investments must:
• hold a licence from ASIC. Their licence controls what kinds of schemes they can sell you.
• be a public company (that is have Ltd, not Pty Ltd, after their name) Search our National Names Index to see if they have Ltd (and not Pty Ltd) after their name.

Before you hand over your money to someone asking you to join an investment scheme ask them: 'Does your company hold an Australian financial services licence to sell this investment?'

If they say they don't hold a licence then they're operating illegally. Hold onto your money. How to recognise a scam when you see one

Investment schemes involving 20 people must also be registered with us. Such schemes are called 'managed investment schemes' whenever they:

• bring people together to contribute money to get an interest in the scheme
• pool your money together with other investors (often many hundreds or thousands of investors) or use your money in a common enterprise
• give day to day control over the operation of the scheme to someone else.

More about managed investment schemes

Managed investments

Avoiding scams and illegal schemes
You will very quickly learn that there are factors common to all investment scams:
- they don't have a product disclosure document
- they promise high returns
- the investments are often based overseas or must be kept a "secret", presumably so other people don't find out about the offer and make a killing as well.

Ponzi schemes

- The simplest, yet most effective scams perpetrated on unsuspecting investors for many years have been Ponzi schemes. The scheme only requires a few victims in its early stages to be successful. The promoter promises you a very high return on your investment and says it is secure.

- Part of the money deposited by early investors, is then used to pay their first dividend cheques or interest. The victims are more than happy to get high dividends. The swindler continues paying them dividends for a couple of months until they are more comfortable with their investments, and decide to invest more. They then begin to urge their friends and relatives to invest as well. Soon, there is a steady flow of funds into the scheme, and the number of investors grows.

Provided the swindler is disciplined about how much money is left in the account to pay "dividends", the scam can go on for many years.

Theoretically, if the scheme continues to draw in new investors, it could go on indefinitely. In practice they usually fall over because the promoter starts to spend the money too quickly, or the pool of investors starts to dry up.

Scams and swindlers

See our Scams and swindlers page for stories about scams and rip-offs including a Ponzi scheme that saw 34 investors losing $6.5 million of their hard earned savings.

International bond schemes

Australian investors have lost millions of dollars in fraudulent schemes promoted with names such as "international bonds", or "prime bank instruments" which offer very high returns. Many of these schemes expand their network by asking you to tell your family and close friends about the scheme.

Pyramid investment schemes

These schemes operate in a similar way to pyramid selling schemes. One person "invests" some money in the scheme. The only way they can move up the scheme is if they introduce other people to "invest" in the scheme. There is never any real product into which the money is invested; all that happens is that the money flows up the pyramid.

Theoretically, the scheme will go on forever, and everyone who joins in will make money out of it, but in practice the only way for new investors to profit is if there are new recruits. Each new investor will find it more of a struggle get new people to join the scheme and to make money. In Australia it is illegal to promote or participate in a pyramid investment scheme. More about pyramid schemes.

Nigerian letter scams

Letters are sent from a person claiming to represent a government agency in Nigeria. The letter asks you to give your bank account details so they can use your bank account to get many millions of dollars offshore - for which you will be paid a generous commission. Ignore these letters and do not give the scamsters any bank details. All that happens is that they withdraw the balance out of your account. At least six people who provided their account details traveled to Nigeria to investigate the scheme and were murdered.

3 tips on how to avoid scams:

1 Find out how the investment works
Always take time to think about a proposal and make sure you know how it works. If you don't understand the information you are given, take it to an accountant or licensed adviser to discuss with them.

2 Always ask for the prospectus or product disclosure statement (PDS)
A prospectus or PDS will set out all the information you need to make an informed decision about an investment scheme. It will give you information about the financial position of the company or scheme and its future prospects.
Even small investment schemes need a prospectus | Guide to reading prospectuses

What's a product disclosure statement?

3 Beware of investments offering high returns with "no risk"
They are usually the worst risk of all. A high return is as little as 2% higher than the return offered by established companies offering similar types of products. Higher returns mean a higher risk that you may lose money.

Where to report a Scam in Australia

If you have been scammed or think you have seen a scam, there are many government agencies in Australia that you can contact for advice or to make a report. The best agency to contact depends on where you live and what type of scam is involved. If you are not sure which agency would be the best one to contact in your circumstances, contact the ACCC Infocentre on 1300 302 502.

- Scams from interstate or overseas—contact the ACCC
- Financial and investment scams—contact ASIC
- Banking and credit card scams—contact your bank or financial institution
- Local scams—contact your local office of fair trading (consumer affairs agency)

- New South Wales
- Victoria
- Queensland
- Western Australia
- South Australia
- Tasmania
- ACT
- Northern Territory

- Reporting spam emails—contact ACMA
- Reporting fraud, theft and other crimes—contact the police
- Scams from interstate or overseas—contact the ACCC
- The Australian Competition and Consumer Commission (ACCC) is the only national agency dealing with general consumer protection and restrictive trade practices matters. The SCAMwatch website is published by the ACCC.

You can report a scam to the ACCC electronically by filling out the report a scam form below. This form will go directly to the ACCC’s Infocentre staff.

Report a scam to the ACCC (electronic form opens in new window)

You can also report a scam by phoning the ACCC Infocentre on 1300 302 502. The Infocentre is staffed between the hours of 8.30 am and 6 pm.

The Infocentre is the primary contact point of the ACCC. If appropriate, information received is passed on to investigators. Callers can also be provided with information by Infocentre staff on their rights and responsibilities as businesses or consumers. If Infocentre staff cannot help they will usually suggest the appropriate government department or agency to contact or give you information about any other options that may be available. The ACCC does not give legal advice and recommends that a solicitor is the most appropriate person from whom to seek such advice.

- Financial and investment scams—contact ASIC
Financial scams are scams that involve sales offers or promotions about financial products and services such as superannuation, managed funds, financial advice, insurance, credit or deposit accounts. Report financial scams to the Australian Securities and Investments Commission (ASIC) on 1300 300 630.

- You can find more information and report financial scams on ASIC's consumer website, FIDO.
Contact ASIC on infoline@asic.gov.au or 1300 300 630 (International +613 5177 3777 ). If you need a translator, call the Telephone Interpreter Service on 131 450. They will call ASIC for you.

- Banking and credit card scams—contact your bank or financial institution
As well as reporting these scams to ASIC or the ACCC (see above), you should alert your bank or credit union when a scam involves your bank or credit union account.

Many scams arrive in the form of emails or phone calls claiming to be from your bank or financial institution (for example, phoney fraud alerts or ‘phishing’ scams), or otherwise try to access your accounts.

You should telephone your bank or financial institution if you are suspicious of an email, letter or phone call that claims to be from them, or if you think someone may have access to your accounts. They can advise you on what to do next. Make sure the telephone number you use is from the phone book or your account statement, ATM card or credit card.

- Local scams—contact your local office of fair trading (consumer affairs agency)
While the ACCC is the only national agency dealing with general consumer protection matters, state and territory agencies also have specific jurisdictions in relation to scams.

The consumer protection provisions administered by the ACCC (for example, against misleading and deceptive conduct) can also be found in state and territory fair trading acts. These acts—as well as more specific laws and safeguards like those dealing with door-to-door sales—are administered by the office of fair trading or consumer affairs agency in your state or territory (the name of the agency varies from state to state).

Your local office of fair trading or consumer affairs agency is best placed to investigate scams that appear to come from within your own state or territory and you should report these scams using the links below.

Some of the state and territory agency websites below also name specific practices that they consider to be scams operating in their state or territory. But remember that these lists are not exhaustive and the ACCC does not endorse nor warrant the accuracy or completeness of this information.

- New South Wales
Office of Fair Trading
13 32 20
Scam Smart - information
Report a scam to News South Wales

- Victoria
Consumer Affairs Victoria
1300 558 181
Scam information
Report a scam to Victoria

- Queensland
Office of Fair Trading
13 13 04
Scam Smart - information
Report a scam to Queensland

- Western Australia
Department of Consumer and Employment Protection
1300 30 40 54
WA ScamNet - information
Report a scam to Western Australia

- South Australia
Office of Consumer and Business Affairs
08 8204 9777
Scam alert - information
Report scam to South Australia

- Tasmania
Consumer Affairs and Fair Trading
1300 654 499
Scam information
Report a scam to Tasmania

- ACT
Office of Fair Trading
02 6207 0400
Scam information
Report a scam to the ACT

- Northern Territory
Consumer and Business Affairs
08 8999 1999

- Reporting spam emails—contact ACMA
Many scams arrive by email. You can report any uninvited emails (know as spam emails) to the Australian Communications and Media Authority (ACMA). You can also download ACMA’s ‘SpamMATTERS’ button for Microsoft Outlook or Outlook Express. When you press the SpamMATTERS button, the spam email is forwarded to ACMA and deleted from your system. Installing SpamMATTERS will not stop the spam reaching you, but it can help ACMA to trace where the spam is coming from.

Fraudulent (or 'phishing') emails requesting personal details can also be reported to the bank, financial institution or other organisation concerned (be sure to use a phone number or email address that did not appear in the email to make your report).

Reporting fraud, theft and other crimes—contact the police
Many scams that may breach consumer protection laws (those enforced by the ACCC, ASIC and fair trading agencies) may also breach the fraud provisions of various crime acts. If you are the victim of fraud—if you have suffered a loss because of someone’s dishonesty or deception—you should consider contacting your local police station (especially if the amount involved is significant).

You should definitely contact the police if you have had your property stolen or been threatened or assaulted by a scammer.

Sources: Unlicensed overseas callers and fake regulators

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