The country's current economic climate continues to breed investment
frauds and scams at astounding rates. But, not every investment adviser
or broker is a crook, and not every opportunity is a scam. The trick to
uncovering an investment scheme lies in these five steps.
1. Do your research. Before you invest, you should always check the registration
status of any adviser, broker, brokerage firm, or security that you're
considering. Call your states securities regulator to check the registration
status and background of an adviser, or use
FINRA's BrokerCheck to research a broker. You should also verify that any brokerage firm you're
considering doing business with is a member of the Securities Investor
Protection Corp. (SIPC), and that all the stocks and securities you purchase
are registered with the SEC or your states securities regulator. For added
peace of mind, consider checking up on a financial adviser throughBrightScope's new financial adviser tool. (For more information on BrightScope, read our May 2, 2011 post
2. Understand the investment. You should never invest in a stock, bond,
fund, or other security or investment opportunity without knowing how
it works. You should be able to explain (at a minimum) how the investment
will make money, what fees/costs are associated with it, and the risks involved.
3. Verify your account's existence independently of your broker/adviser.
Recent fraudsters have tried to cover up their investment schemes by issuing false
account statements. If you can log on to your account online, check your paper statements
against your online statements. Look for any inconsistencies, such as
trades reported online that aren't shown on your paper statements
or a balance difference. If you can't access your custodian or brokerage
firm account online, call the company directly to check your account balance
once a month, or once per quarter.
4. Only deposit money into your accounts through your custodian, brokerage
firm, bank, or insurance company. Never give your financial adviser or
individual broker cash or checks made payable to him/her unless it is
for services payable directly to them.
5. Be wary of exaggerated claims or promises. Remember: In the world of
investing, if it sounds too good to be true, it almost always is.