What Should We Watch Out for to Protect Ourselves Against Fraud When Making a Financial Investment Decision?

With today's advancing technology, the variety of financial investments is steadily increasing. Although this may be seen as advantageous for investors, the same circumstance also makes fraud easier. Both the rapid advancement of technology and the increasing complexity of financial investment types require investors to become even more informed.

Investment is defined as individuals using a certain amount of money they have saved, by making use of various instruments, in order to obtain earnings or income. Within this scope, individuals aim to achieve the highest benefit with the limited financial resources at their disposal. However, as current research also shows, the level of financial literacy in our country is low. This circumstance can cause investors who invest without obtaining professional assistance to suffer losses.

A financial investment decision requires detailed evaluation and research. Financial literacy comes into play precisely when making this decision. Financial literacy is defined as the ability to understand and use various financial skills, including investment. Understanding and analysing risks and opportunities when investing, taking the necessary precautions, and being able to make the right choices and comparisons among financial risks and opportunities all become possible by attaining financial literacy.

When investing and benefiting from financial products and services, financially literate individuals adopt an informed attitude by taking into account security and similar factors. Although not limited to what we have stated, financially literate individuals also possess knowledge of the methods for resolving the problems that arise in relation to these investments.

We must emphasise that financial literacy is necessary not only for a particular segment of society but for everyone. The presence and prevalence of financially literate individuals in a country provides stability in that country's economy and financial system. It is stated that an increase in financially literate individuals will indirectly contribute to economic growth and the efficient functioning of markets.

Within this framework, we can set out the fundamental matters that should be observed in the name of "financial literacy" before making a financial investment decision and while making a financial investment as follows.

1 - "Be suspicious if a high return is promised within a short period."

Particularly with the proliferation of investment advertisements on social media that promise earnings, people's inclination towards investments that promise high earnings within a short period has increased. However, it is quite risky, especially for persons lacking financial literacy, to turn to such investments with the aim of obtaining substantial earnings within a short timeframe without carrying out the necessary research and analysis. Such promises may be used for the purpose of fraud, and in any event they may cause high financial losses. For this reason, if a high return is promised within a short period, one must be suspicious and act cautiously.

2 - "Do not make your investment decision hastily under the pressure of 'the opportunity will slip away'."

It is a possible situation for a financial investment decision to cause financial loss. Within this framework, making a decision hastily through impulsive behaviour, without carrying out a detailed evaluation, is not recommended. Informed financial investors take many alternatives into account when investing. Under pressures such as the opportunity slipping away or prices rising, the ability to evaluate may diminish and risks may be disregarded. Moreover, making a hasty decision may hinder the evaluation of the current situation and the investment. Avoiding sudden and reactive investment decisions will undoubtedly protect investors.

3 - "Research the legal and tax dimension of the relevant investment."

Before making a financial investment decision, it is important to evaluate the relevant investment from a legal perspective. Within the scope of developing financial literacy, it will be necessary to obtain information and conduct research regarding the investment to be made. Indeed, the investment one wishes to make may be legally prohibited or a criminal offence. In such a case, while seeking to obtain earnings through investment, legal liability may arise.

Financial investment instruments and the companies that provide services in this respect are for the most part subject to a special law. Of course, not being subject to a special law will by no means indicate that the relevant investment is definitely prohibited or a criminal offence. However, an activity prohibited by law or an investment whose conduct constitutes an offence may be in question. Within this scope, the research must also be completed with respect to the legal dimension of the investment.

In addition, a tax obligation may arise as a result of making a financial investment. This circumstance will undoubtedly affect the investment decision. For this reason, it is recommended that detailed research be carried out before making the relevant investment, and even that the opinion of persons who are experts in tax matters be obtained regarding the tax dimension of the financial investment.

4 - "Research whether the counterparty to the transaction has the authorisation and licence to carry out this business."

First of all, before making a financial investment, one must have a command of the functioning and order of the system. The parties that provide services in respect of financial investment for the most part carry out their activities subject to a licence and permission. For this reason, it is necessary to research whether the relevant counterparty is authorised to provide this service.

A permission, licence and authorisation granted by a competent authority indicates that the party carrying out the relevant activity is supervised and regulated. For example, the Banking Regulation and Supervision Agency (BDDK) is authorised to grant banks their establishment and operating permissions. At the same time, banks are under the supervision and oversight of the BDDK. Investment transactions to which institutions or persons whose activity is subject to permission under the legislation but who carry out unauthorised activity are a party may cause financial loss. Although this certainly does not mean that the rules of law do not protect the investors who are a party to such transaction at all, it may not be possible to fully compensate the financial loss that will be suffered as a result of making an investment by placing trust in parties acting without authorisation or licence.

5 - "Speak with persons who have previously made this investment, but select these persons yourself."

Before making a financial investment, it is important to speak and exchange views with persons who have made this investment. This may enable the advantages and disadvantages of the investment to be seen; however, what is important here is that the person who is going to invest selects these persons. Persons directed to or referred by the counterparty to the investment transaction may be misleading or acting in bad faith. The persons whose opinions are to be given weight must be selected independently of the counterparty to the transaction.

6 - "If the investment is to be made within the body of a business, be sure to physically visit this workplace."

Where the financial investment is to be made through a business, it is recommended that the business's trade registry records be examined. Having information about the business's commercial structure, capital and authorised persons may affect the investment decision. Furthermore, physically visiting this workplace is also important. Information obtained solely through remote means of communication and the persons spoken with may not be sufficient. Personally visiting the relevant business and obtaining information from authorised persons will play an important role in making the financial investment decision.

7 - "Request information on how the counterparty to the transaction will manage your fund."

It is necessary to learn how the fund deposited to make a financial investment will be managed by the counterparty to the transaction. In the special laws to which some institutions are subject, there are restrictions concerning the protection of deposited funds and their management by the counterparty to the transaction. It is advised to have information about how the counterparty to the transaction, whether a natural or legal person subject to or not subject to these restrictions, will manage the deposited fund.

8 - "Be sure to request that a contract be concluded in respect of the transaction."

Before depositing a fund for the purpose of making a financial investment, a contract must definitely be concluded. The purpose of concluding a contract is to determine the parties, the rights and obligations, the undertakings, the fee, the term of the contract, the framework of the investment and the other essential elements. Where these contracts are presented to the investor in a ready-made form, careful examination is important. Indeed, today many contracts contain general terms and conditions. The contract signed may impose one-sided onerous obligations on the investor, and it may also have provisions added that restrict the investor from claiming rights afterwards. In order to prevent this situation, it will be to the investor's benefit first to request the contract and to examine the contract to be signed in detail.

Finally, it will be necessary to obtain the signature circular demonstrating that the counterparty to the transaction and the contract is authorised to conclude the contract. In this way, it can be confirmed that the relevant counterparty to the transaction is authorised to sign the contract.

9 - "Do not hand over money in cash. If you are going to send money to a bank account, check it."

In financial investments, handing over money in cash to the counterparty to the transaction may make it difficult to prove that the relevant fund has been delivered in the event of a possible dispute. For this reason, it is recommended that the delivery of money be carried out through financial institutions. In this way, it is also possible to have maximum information about the recipient to whom the relevant amount has been sent. The recipient's name and the recipient's account number will have been obtained.

Where money is sent to a bank account, attention must be paid to whether the recipient's information matches the information of the counterparty to the transaction. In order to prevent the recipient from later claiming, in bad faith, that the amount subject to the investment was not sent to them, it is important that the recipient and the counterparty to the transaction be the same. Otherwise, the counterparty to the transaction may assert that the amount subject to the investment was not sent to them. In order to prevent such claims, checking the information of the recipient and the counterparty to the transaction will be a prudent course of conduct.

In addition, it is recommended that a transaction description always be written during the money transfer. Writing a description regarding this transfer transaction, which is within the scope of the contract between the investor and the counterparty to the transaction, will serve to prove the purpose of sending the relevant amount in possible disputes.

10 - "If possible, request security for the return of the money you have given."

A financial investment may not always yield the promised and expected result. For this reason, one must be prudent against unforeseen loss of income. At this point, it is recommended that the investor request security as a method of compensating for their loss or damage.