Summary: The first rule of building wealth is: always protect what you've already got. Yet, every year, thousands of Australians lose a substantial proportion of their wealth in investments that are either fraudulent, have hidden traps, or are much higher risk than advertised.

However, there aren't really any new scams or tricks under the sun. The names of the firms and individuals may change but the types of investment schemes to avoid can be learnt. So too can the warning signs indicating an investment is too good to be true. I'll use this post to provide details of investment types and indicators to avoid, as well as examples of past scams to learn from.

Details:

1. Apply the basic guidance on avoiding investment scams provided by ASIC and ACCC ScamWatch such as checking their Australian Financial Services Licence (AFSL)

See:
> ASIC MoneySmart > Scams > Investment scams
> ACCC ScamWatch

In particular, always ask: Does your company have an Australian Financial Services licence and what is the licence number?

If one is provided you should search for the AFSL number on ASIC Connect > Professional Registers to confirm the:

- Current status
- Which firm actually has the licence and their connection with the investment scheme
- Date commenced
- Quality of auditor
- Licence conditions

If the company does not have an AFSL you should not deal with it. There are very few companies worth investing with that don't have an AFSL and they exist among thousands of non-AFSL companies that only operate to part you from your money.

See:
> ASIC: Do you need an AFS licence?

2. Even if a company does have a current AFSL this is not an assurance they are ethical or safe to invest in

Having a current AFSL is a necessary but not sufficient condition for investment.

Past experience has shown that - even for firms with a current AFSL or other licences regulated by ASIC - ASIC can be very slow to act against scams, non-disclosure and high-risk schemes till it's too late for many investors.

Hence, you should always do your own due diligence on these companies, their directors and the investment schemes.

3. Avoid most Managed Investment Schemes unless you've done sufficient due diligence

Many investments in Australia are created under the rules of Managed Investment Schemes (MIS). The key weakness of the regulation of MIS is that as long as something is disclosed in the fine print, it is permitted even if it rips off investors.

To be continued...


Further Info:

ABC Four Corners
> A Betrayal of Trust