Avoiding financial advisor and investment counselor frauds and scams – Overview The best way to avoid being defrauded or scammed by a financial or investment advisor is to investigate carefully several different advisers before hiring one of them.
If you carefully choose a financial adviser or investment counselor, you have a far greater chance of finding one who is objective, competent, and ethical. This could help you to avoid significant problems in the future.
Accompanying this overview article, The Skilled Investor has published a list of “never-dos” with an advisor. This never-do list is presented in several articles:
Avoiding advisor frauds and scams – The “Never-do” list, Part 1 Avoiding advisor frauds and scams – The “Never-do” list, Part 2 Avoiding advisor frauds and scams – The “Never-do” list, Part 3 As a rule, when screening financial advisors, “when in doubt, don’t.” Move on to another adviser.
Even when you have worked with an advisor for some period, do not let the “relationship” prevent you from taking your business elsewhere. If you become less than completely comfortable, leave. It is your money, your future, and your decision.
It is amazing how naive and trusting individuals can be when they chose a broker, investment advisor, or financial planner. For example, the Investor Protection Trust (http://www.investorprotection.org ) commissioned a 1996 national telephone survey of 1,001 individuals entitled “The Investor Protection Trust Investor Knowledge Survey.” Of the total number of respondents, 641 had “received advice from a stockbroker or financial planner.” These persons were asked this question: “Did you personally ever ask for or get specific background information about such things as violations of investment laws on the part of the brokers or planners you used, or other disciplinary actions, such as firings and damage claims against them?”1 Eighty eight percent of respondents said they had not sought nor received such information.
Since personal financial assets take so much work to acquire, it is very surprising how few individual investors perform background checks on investment counselors.
Many individuals use only personal referrals from friends and acquaintances to locate advisors. While this method might increase personal comfort, in essence, it presumes that someone else back up the referral chain has already checked out the advisor. Do not count on that having been done by your friends or acquaintances!
If you follow this unverified advisor referral method, you may be taking unnecessary risks. Numerous multi-million [...]