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Recognising dubious providers


  • If something sounds too good to be true, then it probably isn’t true!
  • Only buy products that you also understand about!
  • Inform yourself and be critical!


The principle applies: If something sounds too good to be true, then it probably isn’t true. High returns are typically associated with an increased risk. If you are being sold “hot tips” or “miracle products”, which promise high returns without any risk, utmost caution is required.

A further rule to stick to is: Only buy products that you also understand about. Financial products are often constructed in a very complex manner, and are often deliberately presented in an even more complex manner. If you have no experience of complex financial investment products, it is better to give such products a wide berth. If your adviser does not take this into account, or even deliberately advises you about complex products, you are better off not entrusting your money the adviser. Please also read our guide to The basics of investing.

If you are interested in services provided by a company you do not know about, you should ensure that you carry out detailed research in advance. Dubious service providers can often be exposed by carrying out a quick bit of research on the Internet: Authorities like the Financial Market Authority regularly published warnings for investors, and consumer protection organisations like the Verein für Konsumenteninformation (VKI) or the Arbeiterkammer publish warnings on their websites about such providers, while investors also swap experiences in online forums, and magazines frequently report in their online editions.

The grey and black market is however particularly versatile, and for this reason you should remain cautious even in relation to companies about which no detrimental information can be found straightaway. A lot of this advice is based on your “gut feeling” and tell-tale warning signs:

  • The legal notice (Impressum) on the website is missing,
  • General statements rather than detailed information about the company,
  • Particularly grandiose advertising slogans and promises of high returns,
  • The visible complexity of product descriptions,
  • The promise of being able to earn a lot of money by attracting other investors,
  • Flattery (“You have been specially selected …!”) even to the extent of being placed under pressure (“You must decide straightaway…!”)
  • Slogans like “The wealthy and banks have long been making money this way, but don’t share their secrets with the public”,
  • Teaser video clips on the Internet,
  • It is difficult to deduce from where exactly the company is really operating,
  • Addresses in offshore locations,

Do not allow yourself to be misled: Dubious companies often go to great lengths to appear reputable, and like to use catchy names and professionally-designed Internet pages.

Reputable providers will as a rule not contact you in an unsolicited way. “Cold calling” is forbidden under Article 107 of the Telecommunications Act (TKG – Telekommunikationsgesetz) and should be reported to the competent telecommunications office if it occurs. If contact is made in an unsolicited manner, this is a particularly strong warning sign about a provider being dubious. It is better to steer well clear of the investment product they are offering. In “Boiler Rooms”, dedicated call centres that are most commonly located in foreign countries, they make targeted attempts to convince investors to buy investments that are either bad or of a dubious nature.

In the case that you receive invitations to product events by unfamiliar providers, you should be particularly warry. Remember that the hosts of the event are well prepared in trying to assuage any doubts you may have. Investing money is a decision to be taken following careful consideration and should not be done “on the spur of the moment” at the event. Inform yourself about the company after the event.

This particularly applies for companies that you find out about on the Internet. The Internet is full of advertisements for questionable financial investments. The providers behind such offers are often difficult to contact as they are based overseas. Be aware of this fact, and check precisely who and what is behind the offer.

If you want to be on the safe side, only invest in provides that are listed in the FMA’s list of supervised companies. These companies are subject to strict conditions and are easily contactable as a rule. However, even in this case you are not protected against an investment that incurs heavy losses. The only way to avoid this is to carry out a detailed risk assessment. To be able to do so, you must have precise understanding of the product.

Before you decide to invest with a provider, ask yourself the following questions, and ask for the product to be explained in great detail:

  • Who is involved?
  • What exactly happens to your money?
  • What is being invested in?
  • How high is the risk? Is a total loss possible?
  • How high are the fees?
  • Who are the fees paid to?
  • Are the possible “exist scenarios”? Is it possible to cash in or resell the purchased product? Is there a liquid market for doing so?
  • Is the company supervised by authorities (like the Financial Market Authority or the Competition Authority)?
  • Can the company be sued in Austria?

Once again, the following again applies: Only buy products that you also understand about!

Please also consider the most frequent forms of deception

Investors are initially invited to invest smaller amounts. Unknown shares or start-up companies in market niches offering high returns are often presented, about which it is practically impossible to find out about. The choice of such companies is backed up by claims that they are new companies or that they are “hot tips”. The initial small profits are intended to keep investors interested and to motivate them to invest a larger amount. Once they have invested more, then either contact is broken off, or the investor is strung along with spurious excuses. Investors do not however see their money again.
This is a collective term for the various forms of fraudulent models, in which the customer is drawn in by a lucrative offer, but however is requested to first make a payment. In this instance the provider is only interested in receiving this advanced payment.

The best-known case is the classic spam mail, in which you are contacted by someone you do not know or a legal practice claiming that you are a distant beneficiary to a will, and you are promised large amount, if you allow your account to be used. At first you will only be asked to pay minor charges for contracts, for transferring money or for other reasons. Variations on this theme extend from sham romances, through insider information, to accounts of politicians and secret knowledge about booming gold mines. There are also other models in which you are promised high commission payments if you pay for product samples. There is no limit to the creativity displayed.

The initial contact is usually by e-mail and you are addressed personally. A clearing warning signal in all cases is the glaring disparity between the amount you are required to pay and the profit you are informed you will make.

A snowball system, pyramid scheme or Ponzi scheme is one where instead of by means of a real investment the investors’ profits are financed by new investors paying into the scheme. If there are no new investors, the system falls to pieces. No pyramid scheme is able to continue to exist for a long time. This is often, however, not recognisable to the investors, as the scheme is disguised as a real investment.

Warning signals include promises of high returns or a sophisticated structure of opportunities to earn money. If you have the feeling that the provider is less intent on selling products than they are at attracting sales affiliates, then this could be a clear indication of the existence of a pyramid scheme.

Snowball systems are prohibited in Austria, as they also are in many countries, and are punished under Article 168a of the Criminal Code (StGB – Strafgesetzbuch).

The methods involved in Multi-Level-Marketing (MLM) or networking marketing differ from those in pyramid schemes. They also, however, use “sub-affiliates” and often contain complicatedly designed profit systems. However, they do have actual investments in real products. The network structure is only intended for better sales, rather than repaying “older” investors.

In boiler rooms enormous numbers of phone calls are made from call centres, that try to attract customers for risky investments. In this case aggressive sales techniques are used and customers are coaxed until they agree to invest. Once they have invested, they often receive information material and fictitious statements about their “securities account”. Usually after a while, an unforeseen event occurs, and the investors are required to make an additional payment. The investors are informed that unless they pay in again or acquire an additional product, it will not be possible for them to be paid out. The result is that additional payments keep on being demanded, however there is never any pay-out.
The perpetrators first of all get hold of the access details to a bank account. This is often done using “Phishing-Mails”, which request you to enter your account information through a faked website. Alternatively, your computer is infected with a virus, which secretly logs access data in the background from online banking sessions. This allows transfers to be made from other accounts.

To be able to transfer the money onwards as quickly as possible, “financial agents” are looked for using Internet offers, who are required to make their accounts available for this purpose. These financial agents are generally unaware of fraudsters being involved, since they believe that it is a lucrative side line. Only the impression is given that companies have difficulties making payments in foreign countries. The financial agent’s job entails withdrawing the money that enters their account and then to transfer it to a foreign country using money remittance systems. Noticeably high earnings are a particular warning sign.

If you accept the bait as a financial agent, the danger exists that you are guilty of being an accessory to money laundering, which is considered a criminal offence under Article 165 of the Criminal Code (StGB – Strafgesetzbuch). Moreover, this activity, if conducted on a commercial scale, is one that requires an appropriate licence. The Financial Market Authority (FMA) will initiate administrative penal procedural steps in this instance.


Therefore, to summarise:

  • If something sounds too good to be true, then it probably isn’t true!
  • Only buy products that you also understand about!
  • Inform yourself and be critical!