In an age where financial scams are becoming increasingly sophisticated, it’s vital to remain vigilant and informed. Deceptive companies often market their schemes to the public, preying on trust and naivety. Understanding the key characteristics of these scams can help you avoid becoming a victim. Here are five telltale signs of financial scams and tips on how to recognize them before it’s too late.

1. Too Good to Be True Offers

One of the many glaring signs of a financial scam is the promise of extraordinary returns with little to no risk. Scammers often lure victims with promises of guaranteed high returns, often much higher than the market average. For example, an investment opportunity that promises a 20% monthly return should raise red flags. Legitimate investments come with inherent risks, and no reputable financial advisor would guarantee such high returns without considerable risk. Think about the infamous Bernie Madoff scam, the largest Ponzi scheme in history that took billions from unsuspecting investors.

Key to Recognize:

• Compare the promised returns with typical market performance.
• Look for disclaimers about risk; if there are none, be wary.
• Research the company and its history of returns.

2. Pressure to Act Quickly

Scammers frequently create a false sense of urgency to pressure you into making hasty decisions. This tactic is designed to prevent you from thinking too carefully about the offer or seeking advice from trusted sources. Phrases like “limited time offer,” “act now or miss out,” and “only a few spots left” are common in such schemes. Solar companies operating door to door have been heavily criticized for this type of activity. “Act now or miss out on the government programs” and other similar statements are used to try to get unsuspecting people to sign right away. Florida AG has filed suits against many of these types of businesses like 320 Solar (their website is now offline). For these type of companies, as you can see by their post below are seemingly just there to get as much money as they can, while they can

Key to Recognize:

• Legitimate investments or financial opportunities will give you ample time to consider your options.
• Be skeptical of any offer that pressures you to act immediately.
• Consult with a financial advisor or conduct thorough research before making a decision.

3. Lack of Transparency

Transparency is a cornerstone of any legitimate business. If a company is reluctant to provide detailed information about their operations, fees, or the individuals behind the business, it’s a significant red flag. Scammers often obfuscate details to make it harder for potential victims to verify the legitimacy of their claims. The FCC has issued warnings about companies using “caller ID spoofing”, a tactic used by potential scams to hide their identity from the person being targeted. Elite Integrity (dba Auto Protection Plus), a Garden Grove company, in 2021 was ordered to refund clients and cease operating because they were never licensed to do so.

Key to Recognize:

• Request detailed information about the company and its services.
• Look for clear, straightforward explanations of how your money will be used and the fees involved.
• Verify the credentials of the individuals running the company through professional associations and reviews.

4. Misleading Direct Mail Pieces

Deceptive companies often use direct mail pieces designed to look like they come from government agencies or other reputable institutions. These mailers may use official-looking seals, logos, and language to create a veneer of legitimacy. While these tactics may not be illegal, they are highly misleading, and some believe unethical. A mail piece that was posted on reddit by an individual trying to clarify if they were in fact a government loan program, reveals some of these tactics. While we don’t know if Priority Plus Financial is a scam or not, the mail piece below could be considered confusing at best when someone receives it. Utilizing language like “Economic Relief for Affected Florida Families” and the US code information located next to the address are tricky ways to have unsavvy consumers feel they are opening a piece from a government agency as opposed to a for profit company. 

Key to Recognize:

• Examine the fine print on the mailer for disclaimers or indications that it’s from a private company.
• Contact the purported issuing agency directly using contact information from their official website to verify the authenticity of the mailer.
• Be wary of any mail piece that prompts immediate action without offering clear and verifiable information.

5. High Fees or Hidden Charges

Financial scams often involve exorbitant fees or hidden charges that are not disclosed upfront. These fees can quickly erode any potential returns and leave you with significant financial losses. Be cautious of companies that are not transparent about their fee structure or seem to charge more than what is typical for their services. The FTC recently filed a lawsuit against Adobe alleging that they misled consumers and didn’t fully disclose that when signing up for a free trial and forgot to cancel before it ended that you were automatically placed in a one-year contract, paid monthly.

Key to Recognize:

• Ask for a detailed breakdown of all fees and charges before committing to any investment.
• Compare the fee structure with industry standards to ensure they are reasonable.
• Be suspicious of any company that is reluctant to provide clear information about their fees or their terms.

Conclusion

Staying informed and vigilant is your ideal defense against financial scams. By recognizing these key characteristics and knowing what to look for, you can steer clear of deceitful companies and protect your financial wellbeing. Always take the time to research, seek advice from trusted sources, and never succumb to pressure tactics. Remember, if something sounds too good to be true, it probably is.

Published by: Nelly Chavez