How to Minimize the Risk of a Ponzi Scheme By Choosing the Right Financial Advisor

We talk a lot about how important it is to research your investments to avoid a Ponzi scheme, but it's equally important to choose a financial advisor you can trust. While it can be impossible to avoid every kind of investment fraud, building a strong foundation can go a long way toward keeping you safe. Do you know what to look for in a financial advisor?

• Ask friends and family. There's a good chance that someone you know is working with an excellent advisor. Ask around, and keep a list of possible leads.
• Meet in person. You can learn a lot about a person when you meet face to face. Get to know the potential advisor's core values, investing style, and respect for risk tolerance.
• Check up on your potential advisor. Start with the Financial Planning Association, the Certified Financial Planner Board of Standards, and the National Association of Personal Financial Advisors. With regard to registered investment advisors ask to see their Form ADV, Part 2, which they must submit to the SEC. It contains information about their background, conflicts of interest, and prior disciplinary action. You can research the qualifications and disciplinary record of a registered representative (i.e. stockbroker) by looking up his or her CRD report. To learn more about how to obtain a CRD report, read our frequently asked question, What is a CRD number?
  
• Look for hidden fees. Understand how (and how much) your financial advisor will be paid. Ask about additional fees and how they might apply to your circumstances.
• Understand the role of the custodian and the manager of your money. A custodian holds your investment account and sends statements. A manager actually executes transactions. It makes sense, then, that securities fraud happens when the same person is both your manager and custodian. Make sure you know who is who, and that you are getting your statements from the custodian.

Fraudsters make a living out of being convincing, and even the most sophisticated investors are sometimes pulled into an investment scam or Ponzi scheme. Always keep an eye on your statements, and never skip the research when you are working with a new advisor, broker, or investment.

If you have already been the victim of a Ponzi scheme, contact one of our respected FINRA lawyers today at 1-866-8-BROKER (1-866-827-6537) for a free consultation. We have the experience, skills, knowledge, and resources to help you recover the funds you've lost to securities fraud. For more information, request a FREE copy of our book Five Signs of Investment Fraud ...And What to Do if it's Happened to You.