Criminals are always looking for ways to make a quick buck. In 2022, countless hard-working Americans were swindled out of nearly $4 billion by financial advisor scams. According to the Federal Trade Commission, FBI Criminal Investigative Division, and the Securities and Exchange Commission (SEC), this crime can happen to anyone. We’ve explored four of these advisor-related scams and ways you can protect your investments and your financial future.
1. Phony Advisor Credentials
There are a lot of different qualifications and credentials that allow people to work as an advisor. However, even if someone does show you documentation, those could be faked.
Double-check investment advisor credentials: It’s up to you to double-check an advisor’s legitimacy with the Certified Financial Planner Board of Standards, and/or the CFA Institute. Simply input the details the advisor shares with you to verify their authenticity.
2. Fake Websites and Documents
Impersonation is the highest form of flattery. Unless it’s mimicking a real financial advisor or firm. The Financial Industry Regulatory Authority (FINRA) recently reported an increase in cyber-related fraud where criminals create fake investment firm websites and fabricate authentic-looking legal documents to swindle people out of their money.
Double-check URLS and look for errors: If an advisor sends you to a legitimate-looking website, don’t simply trust that it’s the real deal. Look at the URL (website at the top of the browser). Is it the name of the firm or the advisor? Often, criminals will get a URL that is their full name to trick potential investors. Additionally, look for typos, spelling errors, and other mistakes. A real business would not allow inaccuracies.
Some of the fabricated electronic documents that criminals create include FINRA BrokerCheck® reports. These documents help investors double-check the legitimacy and overall regulatory records of an advisor. However, these can be altered and emailed directly to an unsuspecting investor. If a report is sent to you by email, don’t simply trust that it is accurate. Get your own report here.
3. Big Claims and No Transparency
If an investment professional says they have a “sure thing” or an investment with “guaranteed returns,” don’t trust them. They could either be a fake advisor or someone with ulterior motives.
Double-check investment details: Yes, there are safe investments such as certificate accounts, but they’re different than mutual funds or stocks and bonds. Anytime someone guarantees a return, it’s guaranteed to be a scam.
Additionally, fake advisors will keep information about their credentials private, including their fees (how they are compensated). If they refuse to share this information or the details they do share seem less than accurate, find another advisor. They work for you, not the other way around.
4. Funds Processed by the Advisor
A reputable advisor working with a legitimate firm will often use a third-party custodian to hold assets and handle transfers to avoid the possibility or appearance of fraud.
Double-check company and advisor identity: If an advisor asks that you write the check directly to them or their firm, be cautious. Be sure they are who they claim to be and that the company they represent is legitimate.
Skepticism is Healthy (and Smart)
Scams are everywhere, but there are also ways to protect yourself and your financial future. First, do an online search for the advisor or firm. Does the information you find match theirs?
Before trusting anyone with your savings, follow the ask-and-check advice from FINRA. You’ll be walked through the verification process, including regulatory checks, SEC (U.S. Securities and Exchange Commission) registration, and more. You’re also encouraged to contact the Montana Securities Department of the North American Securities Administrators Association if you suspect an advisor or an investment firm is working outside the legal limits.
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