Want to Avoid Investment Fraud? Spend Time Choosing Your Adviser

We have long advised investors to take steps to minimize the risk of investment fraud by choosing the right financial adviser. Spending the time to conduct a thorough background check and to understand a potential adviser’s financial designationsmay seem unnecessary, but it’s one of the best ways investors can avoid investment fraud.

Take affinity fraud, for example. Most affinity fraudsters rely on the assumption that investors will take their friend’s, boss’s, or community leader’s word on an investment opportunity, without doing any research on their own.

"People just don't do any research at all," Mike Alfred, CEO of BrightScope, told USA Today. "They rely entirely on their golf buddy or a friend from church who say this is a good guy."

Entrusting someone with your hard-earned money should take more than a friend’s recommendation. Before you write a check, make sure you conduct a thorough background check on the investment and the person pitching it. Tools like FINRA’s BrokerCheck and BrightScope can help.

Proper planning also can help you avoid falling prey to an investment scheme. Take the time to figure out your financial objectives and goals before you meet with a potential adviser. Then, meet with several people to learn how each one would approach your situation. Make sure the adviser or financial professional you choose has experience helping people in your situation achieve similar goals.

USA Today recommends asking the following questions before you make your choice:

  • What experience do you have?
  • What are your qualifications?
  • What licenses do you have?
  • How are you compensated?
  • What organizations are you and your firm regulated by?

For additional tips, read the full USA Today article here. And, remember: Never take it for granted that a financial professional is telling you the truth. Verify any information you receive about experience, qualifications, licenses, and background with a regulator.

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