Top signs you are being conned by an investment spruiker
Being involved with the finance industry for nearly 15 years and having worked with hundreds of referral partners in accounting, property sales and law during that time, the team at Naritas have seen and heard of some astonishing cons.
As such, and set against a backdrop of regulatory concerns of a property investment bubble in Australia, we have decided to compile a list of the top signs you are conned by an investment spruiker posing as an ‘adviser you can trust’:
Self-made, ‘you can do it too’ bravado coupled with warm & fuzzy feelings
- They describe themselves as ‘self-made’ and usually spend greater amounts of time talking about their lifestyle, personal wealth and the opportunity for you to have the same than they spend talking about credible sources of information to back such claims.
- They list their credentials, if any, in terms of being from the ‘school of hard knocks’ and rarely provide any easily verifiable references to any credentials in writing. They use terms to describe themselves such as ‘entrepreneur’, ‘rain maker’ and other buzzwords that carry little by way of meaning other than to create the false impression of their remarkability.
Lack of appropriate licensing & register of complaints
- Many spruikers who are looking to con their victims often do not have an Australian Financial Services Licence (AFSL) or an Australian Credit Licence (ACL).
- They look to exploit the loopholes associated with general property or investment ‘education’ vs. actually providing advice (all care and no responsibility). Equally as extraordinary as the claims they will make about the opportunity, will be the prices they will likely charge for such worthless ‘education’.
- Rarely such spruikers are a member of an external dispute resolution scheme such as the Credit & Investment Ombudsman (CIO). In the few instances they are, their memberships often feature complaints or are very recent in their establishment in comparison to the claims they make about their significant industry experience.
Conferences & vertical integration
- They conduct conferences which are their chosen avenue for pressure sales. Little is provided in writing with most promises being made verbally with an encouragement to commit on the spot rather than let a solicitor or accountant do due diligence on any contracts or claims made.
- They rarely provide any detail on potential conflicts of interest or details on precisely how they are remunerated. When it does occur, it is rarer still that it occurs in writing.
- They call in ‘independent’ parties to act as ‘experts’. These people often have spurious qualifications and motives. When the parties trade as a one stop shop or derive nearly all of their income from cross-referrals from associated entities, this is a practice known as vertical integration and is currently a hot topic of investigation by ASIC. Vertical integration involves the sale of financial products and property by ‘advisers’ who use ‘professionals’ they always recommend to the customer to do the ‘due diligence’ (typically in a directly associated or beneficially owned entity). Because these ‘professionals’ are merely acting as puppets for the spruiker the customer is none the wiser to the risks associated with the proposed investment.
Company directors and corporate registration details
- Their company’s registered address and company registration details they provide often do not stand up to scrutiny. Often the company directors have changed names or have been involved in multiple collapses or near collapses.
- The corporate structure of these spruikers often has extremely convoluted trust structures (i.e. not regular Pty Ltd corporations) with a variety of trustees that are often relatives or they have entities that most would find surprising to learn are in their role as a company officer or controlling entity.
- At the deepest levels of investigation, it is often noted that many of these spruikers list their operations as divisions of foreign entities that do not require licensing.
Brilliant opportunities, buzzwords and glamorous images
- The hallmark of the spruiker is the fact that they will spend more time showcasing the ‘brilliant’ opportunity than they will the risks associated with the approach they are recommending.
- When facts and figures are quoted, they are rarely the kinds of sources that major financial institutions or public policy makers would know and trust. They are typically from sources with little to no credibility in mainstream circles and whose ‘research’ is often heavily biased in favour of the research funder (which is often the spruiker or a similarly motivated scheme pedler).
- In the fields of mathematical and statistical analysis of equities, derivatives and property portfolios for established corporations, the individuals chosen for these analytical roles are often bookish and more skilled at interpreting data than delivering glitzy presentations. The spruiker posing as an ‘adviser’ is often more adept at public speaking, dressing well and at creating near theatre quality backdrops than they are at doing the hard research. Their modus operandi is to distract their intended victim away from the complexities of the proposal and into docile submission under an array of lights, sounds and figures that they can’t take away to be verified.
- Aesthetically pleasing statements, rhymes and buzzwords in place of balanced research and proper due diligence. If you see or hear a person or group mentioning they want to share ‘the secret’ or firing off witty one line statements as the rationale for making an investment such as you needing to buy their advice to get on the ‘fast track to wealth’ you need to run. Such methods of trying to make complex concepts sound sexy are a major facet of the spruikers arsenal. Experienced investors know that the value of advice or investment opportunity lies in the vastly complex details and circumstances of the transaction which can never be simply justified with humour or a witty saying. Furthermore, ‘the secret’ to the spruikers wealth & success is parting the proverbial fool from his money. The secret to you building wealth is to not be that fool and learn that there is no such thing as ‘the secret’. If anything, one’s ability to be a successful investor will nearly exclusively come from a large amount of due diligence and many hours spent reading & testing your understanding of complex investment concepts prior to investing. This is also mated to the need to start off with small investments that can be written-off with little to no pain or consequence before working up to investments of life-altering scope. The spruiker’s objective is to make you believe that they will put your interests ahead of their own and to simultaneously enter you into a legally binding and costly agreement before you have had the chance to verify their ‘facts’ with unrelated parties. One of the surest tests of the opportunity being a con is whether they encourage you to avoid any delay by making a decision on the spot, or ASAP, instead of allowing you to do your own research using various sources. Furthermore, if they don’t stop you from committing until you can demonstrate you have had your own experience in investing with small sums prior to making large commitments with them, then you can be nearly certain what you are receiving is a sales pitch and not advice.
We hope that this helps you or your clients avoid falling victim to spruiking con-artists.
If you have any suggestions for points to add to this list, please message us here.