When it comes to investing, you must find a financial advisor who is honest and has your best interests at heart. Unfortunately, while the vast majority of brokers and financial advisors work hard for their clients, that is not always the case.
Investment fraud is a real problem, and you could suffer a devastating financial loss if you fail to recognize the warning signs. Whether you are already working with an advisor or still looking for the right professional, knowing the warning signs of investment fraud will help you protect yourself and your money. Here are some warning signs to watch out for.
Look for a History of Disciplinary Action
The creators of fraudulent investments do not come out of nowhere, and many have a long track record. These scam artists leave a trail of broken promises and defrauded investors in their wake, but their crimes often do not go unnoticed.
Investment professionals are subject to censure and disciplinary activity, and a bit of research could uncover their past offenses. Licensed professionals are monitored by the SEC or the Financial Industry Regulatory Authority (“FINRA”). These agencies provide publicly-available information about licensed professionals through the SEC’s Investment Adviser Public Disclosure database (www.adviserinfo.sec.gov/IAPD) and FINRA’s BrokerCheck website (brokercheck.finra.org). These databases provide the public with key background information about advisors, including any prior regulatory actions and/or customer complaints. Take advantage of these immensely valuable resources! Always do your homework before handing over your hard-earned money to a new advisor.
Be Aware of Statements Coming Directly from Your Advisor
When you put your money with an investment advisor, they make investments on your behalf but they do not invest those funds directly. Instead, they should be registered with a major brokerage firm, like Merrill Lynch, Wells Fargo Advisors, T.D. Ameritrade, etc. The monthly statements you receive should be coming from the firm with whom the advisor is affiliated.
If your statements arrive bearing only the name of the financial advisor, you could be looking at investment fraud. Scam artists and the operators of Ponzi schemes often issue their own statements, allowing them to make up the numbers to suit the story they are telling. This lack of third-party statements is one of the biggest red flags for investment fraud.
Returns That Are Too Good to Be True
If your stock market holdings are flying high in the midst of a vicious bear market, you may simply assume your broker is a genius. But before you give him or her too much credit, you might want to take a closer look.
Even seasoned professionals are unlikely to always pick winning stocks when the market is headed south. A consistently great return during a down market could be a warning sign of fraud. If your investment returns seem “too good to be true,” they probably are.
As the client, you have the right to ask questions and get clear answers. If your investment advisor refuses to answer direct inquiries or is suddenly unavailable when you call, you should investigate further. If your investment advisor is not willing to be straight with you, it is time to get a new advisor.
Confusing Investment Terms
Shady investment advisors may try to make investing seem more complicated than it really is. They may try to confuse you with acronyms and industry jargon, hoping you will not ask questions. If your investment advisor is constantly using confusing terms or complicated jargon, it is time to seek out an impartial opinion from someone else.
Whether you are investing for the down payment on your first home, your future retirement, or the education of your children, you have the right to advice that is honest and in your best interest. Knowing the signs of investment fraud and dishonest operators is imperative to protecting yourself and your finances.
If you spot any of the warning signs listed above, it is time to move your money and call an attorney. The Law Offices of Robert L Hill, APC is here for your investment legal needs. If you are in the Carlsbad, California area and are in need of legal advice regarding financial fraud, contact us today at 760-448-4425.