One of the first steps to avoid financial fraud is to work with a reputable financial advisor. Before selecting an advisor, research their credentials, experience and background. Avoid working with someone who is not registered or licensed. When working with a reputable advisor you will be less likely to be sold a fraudulent or unsuitable investment. The Financial Industry Regulatory Authority (FINRA) provides a free tool, broker check, that allows you to research the professional background of a broker, brokerage firm or financial advisor. Go to www.finra.org/brokercheck to view an advisor’s registration, licenses, employment history and violations. If you are working with a Certified Financial Planner you can also view the planner’s certification, their compensation method, the year they became certified and their disciplinary history at www.cfp.net.
Seek out an advisor or firm that has been in existence for a reasonable time and has an established office. Review their rating with the Better Business Bureau and ask for referrals from other trusted advisors. Be very skeptical of any unsolicited phone calls, e-mails, letters and personal visits.
Even when you are working with a trusted advisor, stay alert and conduct your own due diligence. Don’t invest in anything that you don’t fully understand. Ask your advisor to explain all fees, expenses and commissions associated with the recommended investments and ask about the ability to access your money. Make sure your investment accounts are held with a reputable third-party custodian and in an account registered in your name, not co-mingled with those of others.
Don’t be pressured into making a decision, take your time to fully understand the investments being recommended. Never invest in something you and your advisor don’t fully understand. A good advisor will be happy to explain the recommendations and will encourage you to take the time needed to feel comfortable with your decision. Be very apprehensive of an advisor who pressures or tries to intimidate you to make a decision before you are ready.
Con-artists try to gain your trust by appearing legitimate. They may appear to be reputable, well-spoken, caring and well dressed. They often use slick, professional marketing brochures without much substance and may advertise in reputable publications. Don’t be fooled by false promises and flashy marketing campaigns. A common tactic is to prey on your emotions by claiming to have inside information or a once in a life time offer that is only available if you act immediately. Inside information is illegal and excellent investment opportunities don’t require high pressure sales tactics. Research any unusual investment opportunities and use common sense to steer clear of fraudulent schemes.Some indications that you might be dealing with a fraudulent investment include the promise of high returns with little or no risk and claims of historical performance that is overly consistent. It is not realistic to earn high returns without volatility and risk.