Financial Advisor Scams and How to Avoid Them
Financial advisor scams can take many forms, but they all have one thing in common: they prey on people's trust and vulnerability, often leading to financial loss. The good news is that with a little knowledge and vigilance, you can avoid becoming a victim of these scams. In this article we will be taking a look at financial advisor scams and how to avoid them.
Typical Scams To Look Out For
One common type of financial advisor scam is the “Ponzi scheme.” This type of scam involves a fraudulent advisor who promises investors high returns with little or no risk. The advisor uses money from new investors to pay off earlier investors, creating the illusion of a profitable investment. However, the scheme eventually collapses when the advisor can no longer attract new investors, leaving many people out-of-pocket.
Another type of scam is the “churning” of an account. This happens when an advisor excessively trades an investor's account, generating large commissions for the advisor, but leaving the investor with substantial losses. It's important to watch out for high levels of trading activity in your account, which may indicate that your advisor is engaging in churning.
“Cold calling” scams are another way scammers try to lure innocent people to invest, where the advisor solicits investors through unsolicited phone calls or emails. In these cases, scammers use high-pressure tactics to convince people to invest in fake or non-existent investment opportunities. They can also use fabricated documents to make their scheme seem legitimate.
It is also a common practice to use “high-pressure sales tactics” like fear-mongering or making false claims, to push people to make hasty investment decisions. Be wary of advisors who make guarantees, especially ones that sound too good to be true.
What You Can Do
To protect yourself from financial advisor scams, it's important to do your due diligence. Start by checking the background of any advisor you're considering working with. In the US, the Financial Industry Regulatory Authority (FINRA) maintains a database of information on registered investment advisors and their disciplinary history. You can also check with your state's securities regulator to see if an advisor has been the subject of any enforcement actions or complaints.
It's also important to be skeptical of anyone who solicits you, especially if you've never heard of them before. Scammers often prey on people who are looking for a “quick fix” for their financial problems, so be especially careful if an advisor is promising you returns that sound too good to be true.
Another way to protect yourself is to understand the fees and commissions that your advisor is charging. Be sure to ask about any fees or commissions before you invest, and ask how they are calculated. Be aware that some advisors may earn more money if they steer you into certain investments.
In addition to checking the background of an advisor and understanding the fees and commissions, it is essential to also have a clear understanding of the investment itself. If an advisor is not able to answer your questions or explain an investment opportunity in a way that you can understand, it's a red flag. Additionally, you should make sure that the investment is appropriate for your risk tolerance and investment goals. Achieve's financial solutions are structured in such a way and are built for you.
It's also important to remember that if something seems too good to be true, it probably is. Be wary of any advisor who is promising you quick and easy profits with little or no risk. Always do your own research and consult with a trusted financial professional before making any investment decisions.
Financial advisor scams can be devastating to investors, but by doing your due diligence and being vigilant, you can protect yourself from becoming a victim. Now that you know more about financial advisor scams and how to avoid them, remember to check the background of any advisor you're considering working with, be skeptical of unsolicited offers, understand the fees and commissions, have a clear understanding of the investment, and always consult with a trusted financial professional before making any investment decisions.