Ten ways to beat the scam merchants

More Scots are being targeted by investment scams that are becoming increasingly sophisticated as they seek to con investors into paying for fake money-making opportunities. Jeff Salway identifies the main tricks and outlines how to avoid being swindled.

1 BOILER ROOMS These operations, which are increasingly commonplace and sophisticated, are typically companies operating from overseas offices and offering shares in "fail-safe" investments. Targets are identified through share registers and offered the "opportunity" to invest in a company before it lists, with the prospect of massive gains. The more convincing scams have persuaded investors to part with thousands, only to find out that the company does not exist.

2 IS IT A BOILER ROOM?If any company contacts you offering an investment opportunity, find out first whether it is regulated by the Financial Services Authority (FSA). Go to www.fsa.gov.uk/register or call 0300 500 5000. If the company that contacted you is not registered, avoid it. If you haven't been contacted by the firm before, ask yourself why it is cold-calling you – authorised firms are not allowed to do this. The FSA also has a consumer hotline with details of all known boiler rooms – 0845 606 1234. If the company is listed but you're still unsure, get the contact details of the person calling you and call them back using the details of the firm listed on the FSA's register.

3 IF IT SOUNDS TOO GOOD TO BE TRUE... … then it usually is. Ignore any e-mails, letters or phone calls offering high returns that are apparently low risk or even failsafe. The sales patter can be very slick and persuasive, but as the Bernie Madoff scandal demonstrated, high return, risk-free investments tend to have a nasty catch to them. Don't be pressured into decisions unless you know what you're getting into and you are sure of the risks.

4 SPOTTING A SCAM Investment fraud is getting more sophisticated all the time, but there are some common themes. Buying shares in companies you've never heard of; tips on companies that are allegedly due to list and expected to rocket in value; obscure stock exchanges; high pressure sales pitches and promotional events; unsolicited approaches and "inside information" all crop up regularly.

5 DON'T ASSUME YOU'RE TOO SMART Experienced investors are the most common victims of scams such as boiler rooms, according to the FSA. The typical victim is a professional with several previous and existing investments and who has been caught unawares or off-guard at a vulnerable time – perhaps after experiencing financial difficulties – by an offer that was too good to refuse.

6 DO YOUR HOMEWORKIf you're tempted by an investment offer or convinced that it's legit, take time to research it. There are numerous investment websites on which it's possible to find information on companies, shares and funds, including performance, domicile and other details that will help mark it out as an existing and credible opportunity. Also do some research on the firm making the offer, in the event that it is FSA-registered. Don't assume an address is an indication of legitimacy – many scams use third parties as mail drops and answering services to reinforce the impression that they have plush offices in a smart area. The reality is different.

7 NUTS AND BOLTS Whatever you invest in, it's important to understand how it works and what to expect. If something sounds complicated, unusual or opaque, steer clear and either find out more or avoid it altogether. Many scams can sound convincing and even simple, but do you know where the returns are coming from? Alternatively it may seem excessively complicated and experienced investors can fall in the trap of not admitting that they don't understand how it works. Ask questions and listen to your doubts.

8 PENNY SHARES The Office of Fair Trading recently launched a clampdown on firms pressuring investors into buying so-called penny shares in very small companies that are high risk and also difficult to sell on. Those selling penny shares typically buy them in bulk and launch an aggressive promotional campaign selling the shares and trying to increase their value. However, the value of the shares is usually inflated only by the demand created by the scam, leaving investors with worthless holdings.

9 NEWSLETTERSMany investors receive dozens of online investment newsletters a week, most of which are genuine. However, some offer information that is less than impartial, plugging particular companies and opportunities. In these cases the newsletters are little more than sales pitches and anything but independent. If you sign up for a newsletter make sure you're familiar with the provider and stay vigilant for so-called investment ideas that pitch specific investments too proactively.

10 GET ADVICETo ensure your investment choices are sound get independent financial advice. A good IFA will understand your needs and advise accordingly. To find an IFA near you, visit www.unbiased.co.uk or call 0800 085 3250.