5 Red Flags of Financial Advisor Investment Fraud

financial advisor fraud

Investors finding out that they have lost money on their investments is way too common. Losses are normal in the stock market.  However, investors do not realize that their losses could be attributable to an investment fraud perpetrated by their financial advisor or stockbroker is very common.

There are some warning signs that have come to be recognized by professionals as the proverbial Investment Fraud Red Flags that should trigger investor caution regarding an investment. Whether you are a new or seasoned investor, knowing about them will, hopefully, enable you to avoid becoming the victim of one.

Ensure you are dealing with registered entities

Many investment frauds have been perpetrated by advisors who are unlicensed selling products that are unregistered. Do the basic due diligence. Ensure that you are dealing with licensed brokers who have the right to run an investment company, and their registered representatives only. While unfortunately, even licensed agencies have been guilty of fraudulent practices, this basic check at least reduces your exposure substantially.

Be wary of high returns

Customers can be easily lured by the promise of high returns. After all, that is why they are investing. Be conscious of the direct relationship between risk and reward; the prospect of higher returns usually comes with a higher risk. If such security, that gives high returns month after month, exists, there is no reason for anyone to invest in anything else, is there?

Question complex strategies

An investment professional should be able to understand the strategy of a security being offered and explain it to you. Market beating success being credited to complex strategies that are hard to explain and understand should be avoided. If you cannot understand the strategy, it means you are buying it blindly.

That is not a good idea. The investment should be made in a transparent manner, after satisfying yourself with regard to aspects like its strategy for deployment, risk factors, and eventually how your indicated return will materialize. It cannot be based on a “trust me” approach.

Documentation is important

Documentation relevant to the type of security you are planning to invest in is important. Inadequacy of documentation should raise suspicion. Any recovery or claim process would also require evidence via documentation. If you are planning to invest in stocks, for example, ensuring you are investing in one that has a stock symbol means the security is genuine, registered and authorized.

Resist being rushed to buy

Another common strategy for a person selling fake investments is to press you to close the deal quickly by scaring you that you will miss the bus if you delay. This is a tactic to hurry you so that you don’t get a chance to think through and do proper due diligence.

Take your time and satisfy yourself. In a competitive world, there will be many similar, if not identical, product offerings. By all means, take a quick decision, but not because a salesperson is rushing you. …and if you do become a victim

Despite checks and balances being in place, broker fraud does take place. If you believe you are at the receiving end of one, Haselkorn and Thibaut, a reputed firm of attorneys, can be contacted for understanding your options and representing you in your recovery efforts.

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