Abu Dhabi, UAETuesday 12 November 2019

Don't be lured in by an ‘alternative investment’ — do your homework first

The promise of high returns can be deceiving, so be a detective to ensure it's legit

Illustration by Gary Clement
Illustration by Gary Clement

Are you frustrated that you work hard for your money, but it’s not working hard for you? With low interest rates offered by banks wiped out by inflation, it is tempting to embark on an 'alternative investment' journey.

An alternative investment is an investment in asset classes other than stocks, bonds and cash. Examples include private equity or venture capital, hedge funds, commodities, derivatives, art and antiques, and even real estate. They are investments that tend to be relatively illiquid and high risk — but may yield high returns.

Typing in these two words in a Google search reveals a world of promised double digit growth. The second one down on my screen offers potential returns of a whopping 28 per cent a year to invest in art, claiming average market growth, compounded, of 33 per cent since 2004.

Alternative investments also include the likes of buy-to-rent cars or motorhomes or boats. You get the picture: you put a lump sum into something that people want or use or need, but that is costly and involves either upkeep and maintenance, specialist knowledge and time, or a fickle clientele who want regular change.

Beware. Look at protection, who owns what, where the entity is registered and whether it is listed with a regulator.

Have you ever come across the airport car park plot purchase scheme? It was recently reported that one such firm, that promised investors a 12 per cent return on £20,000 (Dh94,800) parking spots bought as “leasehold” at Gatwick and Glasgow airports, is a bust.

First Park collected over £230 million this way. The UK’s Financial Conduct Authority this week deemed it an “illegal collective investment scheme” that was “promoted to the public using false or misleading statements”.

An investor forum called Investor Square where punters post questions and updates has the telling signs of this being a scam for years. A message dated December 2017 reads: “Hi. Has anyone invested in the car park investments with Park First? Has anyone been paid the promised returns of 16 per cent?”

So what can we do to protect ourselves if an investment looks interesting? First of all, do not invest in something you don’t understand. Secondly, look up the industry, news reports and reviews. Don't believe everything you read; slick scamming operations go to great lengths to create brilliant websites, reviews and fake news.

Get the company's contact details, including a switchboard phone number, and call them back on it — not a direct number you’re given.

When it comes to sealing the deal, never sign without a cooling-off period. Ideally it should be allowed by the firm you’re negotiating with, or by law in some places.

Standard advice is to check it out with a financial adviser. However, I’m not so sure that the cost is worth it.

What I do recommend spending money on is what I call ‘financial detective agencies’ — outfits that make their living from investigating fraud cases. Yes, it means spending some money — but would you rather ‘lose’ that cost, or risk losing the amount you have set aside to invest?

The easiest, most overlooked way of avoiding scams and unauthorised firms is checking if they are regulated. Ask the company you’re dealing with for their FRN — their Firm Reference Number — with the financial authority they’re registered with. Go to the regulator’s website and access the company’s information directly from it.

If you invest with a firm that is not authorised, you run the risk of dealing with a fraudster. You wouldn’t have access to complaints procedures and compensation schemes in that country if things go wrong.

Regulators list organisations and people who are not authorised, or who are known to be scammers. Note: if you don’t find the name you’re looking for on this list, it does not mean you’re in the clear — it could be that it’s not up to date.

Check the International Organisation of Securities Commissions, which lists companies operating illegally, and the European Securities and Markets Authority, which lists all investment firms in the European Union.

Some securities commission organisations in individual countries do the same. For example, Malaysia’s Securities Commission has a list of unauthorised websites, investment products, companies and individuals.

This investor would have done well to check it before asking this question on the same investor form: “I have invested in Park First Gatwick. I have been approached two days ago (phone call) by a company in Malaysia claiming to be an escrow outfit and will find a buyer for the parking lots. I am sure it is a scam. Has anyone been contacted by someone in Malaysia?”

I hope this person doesn’t end up throwing away good money after bad.

Nima Abu Wardeh is a broadcast journalist, columnist, blogger and founder of S.H.E. Strategy. Share her journey on finding-nima.com

Updated: October 24, 2019 01:27 PM

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