The danger of online investment scams

The FCA recently issued a warning, urging the public to be careful when investing through adverts viewed on social media sites

The warning was issued after it was revealed that £87,410 ($123,549) per day was lost to binary option scams.

The FCA revealed under 25’s were much more at risk to falling for online scams than over 55s, who have historically been more likely to fall for phone scams.

However, the impact of online investment fraud could be much more detrimental than this figure alone.

The changing demographic of those falling for investment scams could have a damaging impact on the wealth management industry.

Those falling for these scams are potentially first-time investors and having a negative first experience of investing could make them reluctant to do so again in the future.

While these firms are fraudulent, the FCA reported that they are presenting themselves as legitimate businesses with well-designed websites, adverts which lure potential investors with the promise of high returns and images of luxury goods.

Firms that are creating websites which are imitating legitimate wealth management businesses could make it harder for wealth managers to gain the trust of potential clients.

However, it is not just the promise of high returns but the accessibility of being able to invest into cryptocurrencies and binary options that are making it easier for people to invest. 

These adverts are certainly prevalent on social media; And it is the  prevalence of the advertising that makes this kind of investment seem more accessible. 

However, this could be an opportunity for legitimate investment managers. What if the established wealth mangers were to adopt some of the techniques that these fraudulent firms are using?

For example, if they were to have a wider presence on ‘younger’ platforms such as Snapchat and Instagram, with appealing, yet realistic advertising, they could gain a whole new demographic of clients or future clients.

To do so effectively, they would have to be realistic on the possible returns. If these fraudulent firms or companies who are offering unregulated binary options continue to prey on young first time investors, which are dominating due to a lack of advertisements legitimate wealth managers, it could have a hugely detrimental effect on future clients.

At the time of writing this article, Facebook banned the advertising of ICOs, cryptocurrencies and binary options.

Rob Leathern, product management director of Facebook, said that these products and services are “frequently associated with misleading or deceptive promotional practices,” which “have no place on Facebook”.

Will this mean that other social media sites will also follow suit? For the interest of those who are could be tricked by these adverts and the legitimate investment managers, let’s hope so.