Despite increased regulation, millions of Brits are the victims of financial fraud every year. From complex investment scams to failing to take advice and being stung by fraudsters, millions of pounds are lost to charlatans every year.

To avoid being the victim of financial fraud, here are some popular tricks to look out for and tips to avoiding becoming the victim of a financial advice scam.

Ponzi and Pyramid Schemes

‘Ponzi’ schemes are named after their inventor, Charles Ponzi. In the 1920s, Ponzi guaranteed a 50 per cent return to investors in the US; however much of the subsequent money he received was used to pay ‘dividends’ to earlier investors.

Pyramid schemes work in much the same way. Investors are encouraged to recruit more people by being paid commission when they do so.

Ponzi and pyramid schemes are where payments are made to existing investors using money from new investors. To early investors the scheme seems genuine and profitable and so it encourages them to attract more people and money.

However, these schemes collapse when there are no more new investors and there is no more money. Investors normally find that their money is gone with most of it taken by the people who set up the scheme.

You should beware of any opportunities to invest your money where you are required you to bring in subsequent investors to increase your profit, particularly if you are told that you can earn more from introducing investors than from the return on your original investment.

Boiler Room Fraud

The Financial Services Authority receives almost 5,000 calls each year from people who think they are victims of ‘boiler room’ fraud. They have found that boiler room victims lose an average of £20,000 each to these scams, with as much as £200 million being lost in the UK each year.

So-called ‘boiler room’ scams involve fraudsters cold-calling you offering you worthless, overpriced or even non-existent shares dressed up as genuine investment opportunities. They promise high returns but often result in you losing your cash.

If you buy these shares, it is likely you will be left with a worthless investment.

Protecting yourself against investment scams

There are various ways that you can protect yourself against these and other scams.

Firstly, always use the FSA’s register to make sure that a firm or individual is, or was, regulated by the authority. The FSA also has a warning list of unauthorised firms and individuals that they believe you should not deal with.

Authorised firms are unlikely to ‘cold-call’ you with investment opportunities or use high pressure sales tactics and, even if you are interested, seek independent, impartial advice before you commit to any investment.

Bear in mind also that if you hand over money to a firm that is not authorised by the FSA or is based abroad, you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong.

If you do believe you have been a victim of financial fraud (or even if you suspect that a scheme is fraudulent) it is important that you report it straight away. You can do this by contacting the Financial Services Authority (FSA) and to the Police.