It is Fraud Awareness week, so it seemed only fitting to focus on scams in this article. Scams have come a long way; if nothing else, you must hand it to scammers when it comes to ingenuity. They are the undisputed champions of spin. Whether it’s a big opportunity to buy ‘crypto’ or other bogus financial products, or something as seemingly benign as a text from ‘the bank’ with a convenient link… there are levels of sophistication far beyond the cold call scammers wanting to fix your computer virus.

In a time where belts are tightened, things like Facebook Marketplace are a hotbed – I am sure we have all seen angry posts on our community pages about someone taking money and never delivering the goods. With the housing situation, it has also become riskier to navigate things like finding a rental online. Scammers may ask for deposits prior to a viewing to ‘guarantee’ a place, only for the unfortunate would-be tenant to discover they have no relationship to that dwelling (and their ‘deposit’ was more a donation to a long-gone Facebook user).

These more elaborate scams (the ones pretending to be banks like HSBC or Citibank, or even the NZ Post or Waka Kotahi scam texts that have circulated in the past year or so) work because they make it seem like the contact is a trustworthy source. What’s safer than a bank or a government agency? We feel we can trust the source, so we do.

Then they might play on greed or status. If you invest in XYZ, you’ll get this much back and you’ll be able to afford all these lovely things for yourself and your family. You end up with a source you think you can trust, who only tells you good news. The scammers exploit people’s desire to grow assets and do well. That can be enough to override caution and cause someone to make poor decisions.[i]

Ponzi scams are always a doozy as well; as recently as 2019 we all watched on as Barry Kloogh was fingered for running a Ponzi scheme from his Dunedin investment advice business. His fictitious “external investments” totalled $15m from 2,000 active clients.

Other mentions for the Ponzi hall of fame in New Zealand include Kelvin Clive, who operated a foreign exchange brokerage which turned fraudulent to the tune of $7m; Russel Maher, who defrauded clients of approximately $1.55m to doctor his deteriorating business; and of course, the infamous David Ross, who was responsible for a final realised loss in excess of $115m by the end of his scheme.[ii] Close to home we had the likes of Warren Pickett in Waipawa, who stole almost $20m from the Central Hawke’s Bay community he supposedly served.[iii]

Since then, legislation has tightened up in the financial services industry; the FMA fully implemented the new financial advice regulatory scheme in March 2023. These requirements require greater adherence to ethical behaviour, competence, skill and knowledge, while also giving greater oversight to the regulator. You’ll still need to do your due diligence and research when deciding to invest in any product, but it will be much harder for the David Ross’s of the world to fudge the numbers.[iv]

Happily, we are slowly getting savvier as scams get smarter. A statement released by BNZ in August showed nine in 10 New Zealanders had been targeted by a financial scam over the past 12 months, while only one in 10 were falling victims.[v]

Many scams are largely conducted remotely, via the phone or online. If you can’t meet the adviser or promoter in person, that’s a red flag. Another good sense check is looking them up on the Financial Services Provider Register (FSPR); the individual and their employer. You can also look up pertinent investment information and legal documents on the Disclose Register.

The best sense check of all… If it sounds too good to be true, it probably is.

If you’re thinking of investing your hard-earned money, start with a face-to-face chat to a trusted fiduciary. One who will take you through the proper advice process and help find the solution best for your timeframe and goals.

And when someone does give you an opinion which you lean on as advice – best ask for it in writing.

 by Nick Stewart (CEO and Financial Adviser at Stewart Group)

·        Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 332.

·        The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://www.stylist.co.uk/money/scam-psychology-tactics/623933

[ii] https://www.fma.govt.nz/news/all-releases/media-releases/david-ross-sentenced-for-new-zealands-largest-ever-ponzi; https://sfo.govt.nz/fraud-and-corruption/what-we-do/investment-fraud-2/#:~:text=BARRY%20KLOOGH,of%20at%20least%20%2415.7%20million

[iii] https://www.nzherald.co.nz/hawkes-bay-today/news/notorious-hawkes-bay-fraudster-freed/4YO2HRRFXSN4IIZNXIXJMVGTTM/

[iv] https://www.fma.govt.nz/news/all-releases/media-releases/financial-advice-regulatory-regime-now-in-full-effect/#:~:text=From%20March%2017%2C%20all%20financial,operate%20under%20a%20transitional%20licence.

[v] https://blog.bnz.co.nz/2023/08/nine-out-of-ten-targeted-by-scams-but-new-zealanders-getting-more-scam-savvy