What is the real cost of investment scams?
The number of clone scams increased 29% after lockdown began, according to the UK’s National Crime Agency (NCA).
Despite these warnings, and the FCA’s efforts to blacklist cloned sites, victims continue to fall through the protective net and MPs have begun calling for tougher sanctions against search engines that host fraudulent ads from clone websites.
Firms recognise the damaging impact of scams. Aviva has launched its own fraud hub, while Royal London has a series of podcasts to help consumers avoid scams that have proliferated during the pandemic. Many others have been seeking to raise awareness and campaign for tighter rules against fraud.
The Pensions minister went as far as saying consumers couldn’t trust search engines when researching financial products.
The direct cost of this type of fraud is substantial, with the NCA estimating that £78 million was lost by victims in 2020 alone.
But the losses borne by victims (and their insurers) could be just the tip of the iceberg.
As a 2018 report for the Home Office identifies, the real cost of crime goes way beyond the immediate impact on victims. It estimates, for instance, that a robbery costing £1,030 in lost valuables could actually amount to an aggregated cost of more than £11,000 once police time and administration costs are accounted for.
However, even this figure excludes what the Home Office terms ‘precautionary behaviours’ - the cost associated with individuals taking steps to avoid being a victim of crime.
For an example of precautionary behaviours in action think about a spate of muggings on a high street. The crime is costly for those that have their valuables stolen, but when shoppers start to give that area a wide berth it also carries a knock-on cost for retailers that lose footfall.
Our research suggests the threat of scams could be harming the investment industry in a similar way.
When we asked the public what they perceived to be the risks of investing, 33% of investors cited the danger of falling victim to a scam, rising to 52% among cash savers. Of all perceived risk factors of investing we surveyed, this is the biggest gap between cash savers and investors, suggesting it could be a significant motivating factor in discouraging cash savers from opening investment products.
Capital Economics estimates that households have accrued £140bn of additional cash due to the pandemic, much of which is expected to remain in savings and investment despite a post-lockdown spending splurge.
Although there are lots of factors that influence whether or not someone chooses to invest spare cash, even if just a tiny fraction of pandemic savers are put off investing because of a fear of being scammed then it represents hundreds of millions of pounds going uninvested – the true cost of financial scams.