HOW TO AVOID AN INVESTMENT SCAM

My favorite segment in Kwento Disyerto is the financial sharing with Mr. Armand Bengco of Colayco Foundation for education and KSKCoop.

Last Fridays’ topic was how an OFW can avoid being a victim of a financial scam. We all know that the OFW’s are constantly targeted by different financial scams. Be it an old style or new style of scam, the OFW is always vulnerable to this. So how can an OFW really tell that an investment is legal or scam?

According to the informal report from the Securities and Exchange Commission (SEC), as was shared by Mr. Armand Bengco, from 2001 up to 2007, seventy billion pesos (P70B) have been lost due to the different investment scams in the Philippines. During that same time the mutual fund industry in the Philippines is also worth P70B. This however doesn’t mean that the amount of money that has been lost due to the investment scams has been shifted to the mutual fund industry. This only implies that there are a lot of legitimate investment schemes and there are also a lot of investment scams out there. What we really need to do is to be investigative when it comes to any investment scheme that comes our way because intentional or unintentional we may fall victim to these scams.

The most popular among the investment scams is the networking or multi level marketing (MLM). This doesn’t mean that all MLM or networking is a scam. There are also legitimate MLM or networking companies. Multi level marketing is a marketing scheme that a certain company uses to promote and sell their products, which is commonly known as direct selling. Mr. Armand Bengco uses Avon and Tupperware as one of the good example of this direct selling company. Their product is distributed by the agents through direct selling and in return the agent earns their commission once the product is sold. Also be reminded that once you join the MLM or networking company, this doesn’t mean that you already have an investment or a business as what most MLM company claims for their members.

Since the MLM have prospered, a lot of networking companies have come into play. The first indication that you need to check before joining a certain networking company is how you can earn your commission. If you are earning your commission by selling the company’s products then it is legal, but if you are earning your commission through the number of your recruits then it is already illegal. This is commonly known as the Pyramiding scheme. The value of the product is usually disregarded with this kind of scheme because you can only earn your commission as long as you are actively recruiting people to join.

Another example of investment scam that doesn’t use direct selling or MLM is the Franc Swiss. This investment scheme uses a website as the product. You have to deposit ten thousand dollar in order to join and you are promised to earn 5% of your investment daily. Because of the high return from the investment a lot of popular showbiz personalities and basketball players fall victims to this scam. And the saddest truth, again as Mr. Bengco says, with this investment scam is you won’t really be able to get back your investment. During the pioneering stage of this scheme, they are giving the daily interest income of the investment. This is a common trick in order to persuade the other would be victim to join. And take note of this, the victim is easily convinced to join because the one offering to them this kind of investment is their colleagues or relatives loaded with copies of paychecks, pictures of properties and the like as a proof of their income.

Here is one important reminder that Mr. Armand Bengo stressed and everyone ought to remember at all times. Once you are offered of an investment scheme which is not MLM, you need to ask first for its license. Most of the time they show the DTI or SEC registration only which is not enough, because that SEC registration is only a birth certificate of the company. It is only the certificate of incorporation. What you need to ask for is the company’s secondary license, also issued by SEC, that allows them to get an investment. If they can show you one then you are somehow assured that this is not another investment scam.

Another point of stress from him is to make sure that you really understand what you are investing in. Before you invest your hard earned money, see to it that you really understand how your money will grow through that investment scheme. Don’t invest just because other people say so, or your relatives, friends and colleagues say you invest. They may have been a victim already and you are about to join them unknowingly.

Also in order for you to understand how your money will grow, you need to check out the underlying asset of your investment. You don’t have to be carried away when the one offering you an investment says that your money will earn a high percentage or will double in a short time. Remember, when it’s too good to be true probably it’s not true. You better ask the one who is offering you an investment this question; “What is the underlying asset of this investment scheme?” He must be able to explain to you the underlying asset of the investment that he is offering. If not, then it is advisable to be cautious and don’t jump into that investment. For example, if you want to know what is the underlying asset of the mutual fund? The underlying assets of the mutual funds are the shares of stocks of big companies.

UNDERLYING ASSET

1. The physical and financial asset to which a security holder or a class of security holders has a claim. An analyst may believe that a stock is underpriced on the basis of the value of the firm's underlying assets and the potential earning power of those assets.

2. The asset that underlies and gives value to a security. The underlying asset of a stock option is the stock that the option can be used to purchase. Likewise, the underlying asset of a convertible bond is the stock for which the bond can be exchanged. The market value of a security is directly affected by changes in the value of any underlying asset into which it may be exchanged.

Again take this another piece of advice from Mr. Armand Bengco, “When you invest, invest with a purpose. Investigate first before investing. And always look only for the legal ways when it comes to investing.”

For more investing lessons you may want to visit www.colaycofoundation.com, www.kskcoop.com