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Offshore scams and cold calling tricksters: a guide to protecting your investment

The Financial Markets Authority wants Kiwis to learn some home truths about investment. For the first ever World Investor Week, FMA’s Paul Gregory shares some tips on being a smart investor.

As New Zealand’s financial markets regulator, the FMA is both guard dog and guide dog. The guard dog is how we regulate and investigate what financial institutions do with your money. The guide dog is our work to help investors make well-informed decisions to both maximise and protect your investment. So, let me provide some guidance.

Hang up that cold call

It’s illegal to cold call selling financial services or products in New Zealand. Just put down the phone if you get a call touting a get rich quick scheme. Delete any emails you get from a stranger about an “amazing” investment opportunity.   

Likewise think hard before you click on those internet adverts claiming a life of endless riches can be yours through trading foreign exchange or binary options.

Have you ever traded foreign exchange before? Do you even know what binary options are? What makes you think getting rich through trading them is easy? These products are more like gambling than investing.

And remember, once you’ve handed over your credit card details to an offshore ‘here today, gone tomorrow’ company, there’s little we can do to help.

Use an FMA licensed provider when you invest

In the last few years, we’ve licensed more than 200 financial services firms. It allows us to be a more effective guard dog, holding companies and businesses to account for the way they treat their customers.

Baked into a licence are some basic protections for investors which means we know who you’re investing with. You’ll also be able to complain to a dispute resolution service if you can’t resolve your issues with the company, so licensing is a very important development for consumers too.

Avoid investing with offshore, online businesses

We only regulate financial services companies in New Zealand. We see many New Zealanders get caught out by slick websites and promises of high returns. They hand over their money to offshore companies not regulated in New Zealand – and then their hard-earned cash is gone.

If an unlicensed, unregulated company is withholding your money – or their snazzy website has vanished – it’s very hard for us to help you.

Think very hard before giving your money to offshore finance businesses that are not licensed or regulated in New Zealand. If you are absolutely determined to invest, do your research. Make sure you know who they are, who regulates them, and that the regulator is genuine.

Investing in Bitcoin and crypto-currency

That’s an interesting area. It’s changing all the time. But it’s also a risky area.

Most overseas crypto-currency exchanges are unregulated and operate exclusively online, with no connection to New Zealand. The value of a crypto-currency can change quickly, fluctuating wildly. Some are not widely accepted and the “coins” may be stolen.

Some crypto-currencies are offered through Initial Coin Offerings, a little like when a company offers shares to the public to raise money. In this case, tokens are offered. You are, in essence, investing in a business. These are very high risk and you could lose all your money.

Does the FMA look after my KiwiSaver?

We monitor providers alongside other bits of government. But KiwiSaver is not guaranteed by us or anyone else. Like any investment, its value will rise and fall.

Our work means that from next year, you’ll know exactly how much you pay in fees in actual dollars, rather than as a percentage. We urge you to take a look – it might surprise you. If you don’t like what you see, then talk to your provider. Our guide to investor entitlements is a good place to start before you pick up the phone and make that call. So when you’re dealing with KiwiSaver, or other licensed providers, the FMA believes you are entitled to:

1. Competence
2. Be treated honestly and fairly
3. Be informed
4. Know how much you are paying
5. Have problems and complaints dealt with properly.

So if I use a licensed provider, I’ll never lose money on my investment?

Not quite. Our aim is for investors to be well informed and to make smart decisions. But investments carry risk. Some investments lose value. Businesses fail. That’s how markets work. But using a licensed provider gives you a degree of protection.

It’s protection that isn’t there if you go offshore and use unregulated, unlicensed providers. So stay on home turf, hang up that cold call, and delete that spam email.

People from all walks of life have fallen victim to scams, losing money they can’t afford to lose. Don’t think it won’t happen to you. The people behind them can be extremely convincing. That’s why we constantly say “use an FMA licensed provider.” Remember: if something seems too good to be true, guess what? It is.

This content is brought to you by the Financial Markets Authority. The FMA is the regulator for New Zealand’s financial markets and services. At the start of the first World Investor Week, the FMA is urging investors to use a licensed provider and check out its website for tips about becoming a smart investor.

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