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Hallmarks of Investment Scams

Garry Wong

February 21, 2020
Current Affairs Investment Scams Investment Scams Alternate Investments

Do you know which of the following investments have been used for scams?

  1. Overseas property investment
  2. Durian / Aga-wood Plantation investment
  3. Land-banking investment
  4. Crypto-currency investment
  5. Forex investment
  6. Wine / Whisky investment

You’ve guessed it, there have been scams in every one of them!

It is the year 2020, and Singapore is a hot spot for a growing bed of Investment Scams, each one more sophisticated then the other. Lets have a look at the common characteristics of some scams and learn how you can protect yourself and your loved ones.

Top 5 signs of investment scams

1.) Excessively High Returns in a short time frame

Also known as ‘Get Rich Quick’ Schemes. GIC, Singapore’s sovereign wealth fund, delivered an annualized 3.4% return over a timeframe of 20 years. The Central Provident Fund (CPF) currently guarantees a return of 2.5% to 5% for various accounts. Using these as a benchmark, an excessive return would be anything above 12% a year. 

It is possible to get above 12% returns a year, it would usually involve high gearing or leverage. An example: 

If I could yield 8% return a year, and the bank is willing to give me 200% leverage on my funds at a 2% interest charge a year.

This would yield an annualized return of 20% based off an original investment of $100,000. 

But if your fortune heads south,

You could see an annualized loss of 26% based off the a 8% dip. This doesn’t include potential higher interest rates charged or margin calls. 

Forex Investments works in similar ways, with between 5x to up to 1000x leverages off initial capital. 

2.)Transparency and structure of fees paid to the company / agent. 

Flat percentage Fee is generally the common method for lumpsum investments.
Anything about 5% would be considered high.

Retainer fees, also know as wrap fees are also common as it serves as on-going revenue to the investment firm to continue servicing you. A figure above 2% would be considered high. 

Watermark fees is a fee structure that only pays fees when the portfolio is above a predetermined value. This prevents fees from being paid out for poor performance. This is not common generally only available for Private Investment / Hedge Funds where they aim to deliver returns at all costs. 

Whichever the fee model, work out the sums payable and ask
i) Is this sustainable for the investor, and the investment firm? 
ii) Is the fees charged, worth the value? Is it possible replicate at a reduced cost?

Next, be especially wary if you are told of multi-tier fee structures whereby you are paid a percentage of the Fees for every referral that invests with the company and subsequent referrals that your referral brings in. 

3.) Funds held by Investment Company.

Preferably an independent and trustworthy 3rd-party that is regulated should be the one holding funds because it acts as another layer of check and balance on the investment firm. This is not fool proof but it would be better then depositing your funds directly with the Investment firm and have them ‘running away’ with your money. 

Take absolute care if you have to remit funds for investments directly to the company, or some overseas foreign bank.

4.) High pressure sales tactic

Be wary of limited time only or short window time-frame for decision makings. While it is true that Investment Opportunities come and go quickly, if an investment doesn’t have other such opportunities in future after a potential client misses the first boat, it would be doubtful for them to perform in the long run. 

You shouldn’t have to make a decision on the spot, and you should take your time to perform the all the due diligence required on your part.

5.) Guaranteed Returns, Low Risk / No Risk

If this is true, be assured that it wouldn’t have come to you. This would be a Guaranteed Scam. 

5 Simple steps for due diligence

1.) Check on the background of the company, the directors, the date of registration on Acra.  

2.) Check the credentials of the key employees on Linkedin or the company’s webpage and verify it.

3.) Check MAS watchlist found here

4.) Understand the underlying asset class

5.) Study the terms for investment

Protect your hard earned monies!