Cold Calls from Stockbrokers

Matt Richardson

My last blog in November discussed what investors can learn from the collapse of Banksia and how finance companies such as this are situated in the fixed interest market.

In the last 6 weeks I have seen another example where consumers and potential investors are “targeted” by unscrupulous types, backed by a very well oiled sales pitch and a fancy web site. This post will talk about one particular area where investors need to be very careful.

Cold Calls from Stockbrokers

A cold call is where you receive an uninvited phone call, from someone you have never heard of promising amazing returns from the stock market. Just this statement by itself doesn’t pass “the smell test” and should see the call terminated immediately with a “sorry, I’m not interested” reply. In most cases if the call is not terminated the caller will advise you they have access to a stock which is about to be listed on a particular stock exchange (generally a foreign exchange) and they can get you some stock before it lists at a discounted price. “You could potentially make 30-100% in a pretty quick time frame” is a common forecast.

Four weeks ago I received a call from such a broker who began with “Hi, I’m ***** from **** Securities, are you interested in making some money from the stock market?”. As this was not the first time I had been contacted by an unknown broker I asked him how he got my name. He replied that I had completed a survey and they were following this through as I had advised in the survey I wanted to be contacted. I told him that was a complete lie and why would I take advice from someone I have never heard of who does not know anything about my financial situation. The call was terminated pretty quickly.

In these situations you need to ask yourself instantaneously – Why is this person ringing me? If it is a cold call it is always best to end the call immediately. These people are very believable, very slick and good at what they do, however despite our warnings, we have seen some clients lose money because their trust has been preyed upon.

What we have seen happen is the investor buys the stock, the broker continues to ring and finds other “bargains” and states their original purchase is growing in value. They then discuss the potential to sell the original stock at a profit and reinvest in another stock, but with more cash added. This sounds great, but in fact, it is all a sham. When the investor starts to quiz the broker about where their money is, or asks about selling their investments to redeem some cash, the broker is hard to find and in many cases, disappears.

If the returns are going to be so great, why is the caller working as a broker? They should be squillionaires!

If in doubt, get the brokers name and check the following ASIC website:

This site provides a list of unlicensed broker’s names you should not deal with. Many of our clients have received calls from brokers on this list. Even if you have received a call from a broker licensed to give advice, there is no possible way a broker can satisfy their professional and legal obligations if they recommend a product to you over the phone without determining whether it suits the investor’s particular circumstances and risk profile.

RULE No 1:
If you receive a cold call from a broker/investment adviser you have never heard of – HANG UP!
RULE No 2:
If you don’t hang up and the caller sounds believable and promises fantastic rates of return –refer to RULE No 1!

Have a great Christmas everyone!

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