Investing your money is a great idea, but it's also very intimidating to get started. If you end up investing in a scam, then all those savings that you've accumulated and worked so hard for would be lost. How can you protect yourself? If you know what signs to look for, you can spot a scam instead of becoming a victim.
One of the most obvious signs of a scam is if they ask you to write a check to them and not to the organization or institution in which you want to invest. There should always be a separate, independent, third-party custodian such as Fidelity or Vanguard that serves to safeguard your assets.
Another red flag is any recommendation to invest all of your savings into a single annuity, mutual fund, or stock. Do not fall for that! No investment should be concentrated on one type of product; it's too risky. A sophisticated advisor would try to diversify your investments into different types of products based on your risk tolerance.
If they don't reveal how they generate their fees, be wary. A good advisor should detail their fees to you, whether they work for commissions or bonuses. Most good financial advisors charge a "fee only" instead of saying that they are "fee-based."
If it sounds too good to be true, it probably is! An ominous warning sign is if an advisor promises "above the market" or unusually high returns. A return on any investment should fluctuate just like the market and NEVER be consistent. Someone who is promising you that is likely lying. If an advisor starts acting defensive or irritated by your questions, then something is amiss, and you should just politely get up and walk out the door.
There are a number of ways you can prevent this from happening to you. First, check the advisor's credentials to see who they are affiliated with. There are several resources available for researching financial advisors. For example:
- FINRA BrokerCheck
- Securities and Exchange Commission
- National Futures Association BASIC
BASIC stores data from Commodity Futures Trading Commission registration and National Futures Association membership information, as well as provides regulatory and non-regulatory complaints against an individual or corporation.
If it comes to it, don't be afraid to walk out if something seems awry. You are in control of your investments and future, and only you can decide where to invest your money. This is the best way to protect yourself! If you are the victim of a scam, though, you can still take action.
First, ask to speak with the advisor again. Make sure to gather all your supporting documentation, such as broker statements, confirmation statements, etc, before making that call so you know what information you still need. You have to be prepared to ask carefully thought-out questions. If that doesn't work, then go up the chain and ask to speak to the branch manager or compliance department. They should be able to resolve the problem in a timely fashion. If the whole business is shady, then file a complaint with the Financial Industry Regulatory Authority.
