How to avoid fraudsters and financial scams

South Africa is notorious for the multitude of ways hard-working people who have saved and invested diligently their whole lives can fall victim to financial fraud and scams. Sometimes they’re left with nothing and very little recourse, which causes immense stress and can be a huge burden, especially if they’re are at the end of their working lives and don’t have the time to recover.

10X Investments Senior Investment Consultant Michael Rossouw has armed thousands of South African investors with the information they need to make the right decisions with their money, and often gets asked “Why should I trust you with my life savings?” And although many people ask the question, he’s often surprised at how easily people accept what another person says, without independently verifying the answers they are getting.

If you want to be sure your money is being handled by a reputable business, Michael recommends evaluating them on four levels: The company, the company’s representative(s), the product they are selling and the company’s processes.

The Company

The first question you need to ask is whether the company is registered with the Financial Sector Conduct Authority (FSCA). It is a good sign if the company is registered with the FSCA because this means that when they applied for membership, they had to prove that they would adhere to Financial Advisory and Intermediary Services Act (FAIS) requirements that have been put in place to protect consumers and their investments. To check whether the company you are dealing with is registered, you can ask the company for their FSCA registration number, or visit the FSCA website and click the “FSP search” block on their homepage and search for the company there. If they are registered, the company’s information will appear.

You also might want to consider the following:

• How long has the company been in business?
• Does the company have a physical address and is it real?
• Who is the company audited by?
• Is the company listed on the JSE?
• Does the company have legal and governance documentation on their website?
• Is there a digital ‘paper trail’ of legitimate reviews and social media activity?
• Although these questions do not result in definitive protection against fraud, they do help you ascertain the level of risk you are taking with the company in question.

The Company’s Representative(s)

All companies are structured with some sort of hierarchy, so you can employ a ‘top down’ approach in vetting company employees, starting with the CEO and working down to the representative(s) you have been talking to at the company. The company website should have an “About Us” section that shows you who the CEO and directors are. Google searching them will often yield proof (or not) of their history within the sector, articles they may have published and the like. You can also search them on LinkedIn, and interrogate their work history and qualifications, as well as see who else they have worked with.

Lastly, you can return to the FSCA website, click on the “FSP search” block and insert the company name. Then, you can click on the company’s details, select “Representatives” and insert the person’s name. If they are registered, they will pop up with a list of all the products they are allowed to sell or offer advice about.

The Company’s Products

To paraphrase Warren Buffet, “Never invest in anything you don’t understand.”

In other words, spend all the time necessary to get a fundamental understanding of how the product you are about to purchase of invest in actually works. Ask every question you can think of, and search the internet for more questions to ask after that. You should understand in detail what the risks associated with the product are, and what the worst case scenario might be. Explicitly asking these questions could yield an answer that sways you one way or the other.

The Company’s Processes

Finally, being asked to transfer any money before Financial Intelligence Centre Act (FICA) administration has been completed is the biggest red flag of all. No reputable company will ask you for your money before they have completed the legislated registration processes for you as an investor or client. Likewise, not receiving legitimate documentation for your product or investment isn’t a good sign. So take the time to interrogate the processes under which the company operates. If you’re feeling pressurised to take action without feeling 100% comfortable, something could be amiss.