Alan Steel: Early education key to beating all types of financial scams

Some dangers are obvious to all of us. Warning signs are put in places that we should not ignore. But to investors and long-term savers, there are no warning signs that are obvious, believe it or not.

Financial scams come in various forms and while some only hit a few unlucky souls, the worst affect the majority.

Here are two to be aware of. The first is little known and has hardly been mentioned in the press – with the exception of The Scotsman – or other media and, even worse, has barely been picked up by the industry regulator, the Financial Services Authority.

A couple of weeks ago I had a phone call from George, a long-time client. Now in his late 70s, George was worried about a call he had received from a business in Tokyo, of all places, asking if he was selling the shares it offered to buy from him as per its letter. He hadn’t received a letter, so the company said it would send a fax.

The fax claimed that a couple of years earlier he’d bought shares in a business called Turquoise Development Company and explained that the firm was offering to buy them back for $77,000.

However, George had some years ago been diddled out of an even bigger sum from some nice people in Nigeria, so his suspicions were raised. The firm wanted his signature, whether he agreed or was declining the offer. He was going to sign the declinature, but then decided not to. Good job, because if he had, then his identity would have been stolen.

Watch out for this and don’t give your signature to anybody in such circumstances. It’s a scandal that more people haven’t been made aware of this.

But there is a second, far more elaborate scam designed to frighten most of us out of investing for retirement, especially using pensions.

Have you noticed the hysteria kicked up recently about charges? Loads of so-called experts – without proper qualifications I hasten add – are blaming the fact that so few people have a decent-size pension pot on the apparently excessive charges levied by insurance companies and financial advisers. This is completely untrue, but why waste a good scare story by sticking to the facts?

It may have been true a long time ago that charges were unreasonable, but that hasn’t been the case for several years now. The reality is that it’s not the charges that cause the main problem for investors. Instead, it has been a combination of UK and European Union bureaucratic meddling in rules and regulations, tax grabs by greedy chancellors and ridiculous investment decisions enforced by academic busybodies.

Cheap is not cheerful, as millions of with-profits policyholders, index tracking investors and Equitable Life savers will confirm.

But it’s even deeper than that. It starts off at school because it’s still the case that people leave full-time education without a clue about tax, mortgages, debt, investment, savings or life assurance.

And yet so-called experts still rabbit on about how wonderful final salary pension schemes were. They wouldn’t know how to begin analysing them. They were a flawed product 40 years ago and that was before interfering politicians and bureaucrats and academics got involved for some political agenda.

Those experts are now trying to tell us that 94 per cent of us would prefer to change a dirty nappy than to plan our financial future. Can you believe that? But if that’s the case, then why are they trying to blame the charges? Let’s face it – people don’t invest enough, start early enough, know enough about investment to make decent choices, or understand that the only way to invest properly is to avoid hysterical bad news headlines.

When folks are happy to spend £5,500 a year out of after-tax income running a car – according to AA figures – and only prepared to invest a fraction of that for their future, what chance do they have?

l Alan Steel is chairman of Alan Steel Asset Management