Have you, or someone you care about, been trapped by a financial predator? Don’t beat yourself up too much — you’re far from alone. Financial scams don’t just target the most vulnerable or gullible among us. The best con artists are the ones who know exactly what they’re doing, whether it’s a debt collection, credit card phishing, or imposter scam.
According to the Financial Industry Regulatory Authority (FINRA), approximately one in ten adults in the United States fall victim to fraud each year, losing billions of dollars in the process. However, only people who report fraud are included in these statistics. There are a lot of folks who do not report such betrayal.
But what happens when a financial advisor scams you? Since you were supposed to trust this person, this particular situation can sting badly.
Having said that, remember there is an escape route before you resign yourself to financial purgatory. Following this blog post, you can break free of a scammy advisor’s clutches and reclaim control over your finances.
Red Flags: Recognizing the Signs of a Scammy Advisor
We need to identify the red flags that scream “scam!” before we can work on escape strategies. Here are some to keep an eye out for:
- Guaranteed returns. The promise of consistent, high returns is a classic scammer’s siren song, especially in volatile markets. You should remember that the risk-reward curve exists and that exorbitant returns often come with equally high risks.
- Excessive pressure. Do you feel pressured into making quick decisions or investing in something you don’t understand? Before recommending an investment, a legitimate advisor will consider your comfort and understanding.
- Unclear fees. Hidden fees, excessive commissions, and a confusing fee structure should always raise red flags. Remember, transparency is a hallmark of a good financial advisor.
- Unprofessional behavior. A lack of responsiveness, poor communication, and a lack of interest in your financial goals all signify that someone is not looking out for your interests.
- Suspicious credentials. Credentials that are unverifiable, exaggerated experiences, and affiliations with dubious organizations are always red flags. Before entrusting your money to anyone, do your due diligence.
- Secretive or evasive. Again, a good advisor will make their investment strategies and fees transparent. Avoid advisors who are vague or dodging your questions.
- Unsolicited contact. Don’t be fooled by cold calls or emails promising financial miracles. Typically, legitimate advisors work through referrals or established networks.
How to Escape a Scammy Advisor
As soon as you identify these red flags, you should act immediately. To escape a scammy advisor, follow these steps:
Gather evidence.
In order to protect yourself from fraud, FINRA highly recommends creating a “fraud file.” The file should include all evidence of the fraud and be kept securely.
At the very least, your file should include a written timeline of events, depending on the nature of the scam. The reason? As a result, it will be easier to remember what happened and the name and contact information of the alleged scammer.
When gathering evidence, here are some tips to keep in mind so you don’t forget anything.
- Collect all communication. You should include any emails, phone recordings, texts, and documents you received from the advisor.
- Document your transactions. Make sure you keep track of all your investments with the advisor, including dates, amounts, and payment methods.
- Research the advisor and their company. Search for complaints or disciplinary actions against them on the websites of financial regulators and online review sites.
Cut Ties With Your Financial Advisor
Your next step will be to terminate the relationship with the financial advisor. Regardless of whether they scammed you — ending a relationship with your financial advisor can be uncomfortable. However, it is a necessity.
To make the process as smooth as possible, follow these steps:
Before packing your bags, read the fine print.
Don’t storm out without grabbing your client agreement. This document outlines the terms and procedures of your relationship. Knowing these details upfront will help you avoid nasty surprises from a contract you may be in.
Make a new course of action.
Do not jump ship without a plan. In other words, you’ll have to plan how you’ll manage your finances in the future.
In most cases, you have three options:
- Do-it-yourself. It’s up to you to set up new accounts, select investments, and monitor your portfolio’s performance if you want to take control of your investment portfolio. With this option, you have complete control. However, you must be familiar with the stock market and investment strategies.
- Use a robo-advisor. If you’re looking for a low-cost way to manage your investments, consider using a robo-advisor. Wealthfront and Betterment use computer algorithms to automate portfolio management. The only downside is that you won’t receive the personalized advice you would receive from a financial professional.
- Find a new advisor. You may want to consider new financial advisors if you lack the energy or time to manage your portfolio independently. Search for and interview potential candidates who align with your investment philosophy and financial goals.
Be sure to gather your belongings.
We’re not talking about packing sentimental items. Instead, this is about getting your financial ducks in a row.
Be sure to request copies of all your account statements, investment reports, and tax documents. By doing so, you will be able to present your new advisor with a full picture of your financial situation, if you choose to go that direction.
One advantage of hiring a new advisor is that they can handle a lot of paperwork. ACATs are one of the most common forms used to change advisers. They come in two forms: full and partial. This form transfers your assets to the new account.
It’s time for the talk.
If you want to fire your advisor, a phone call or an email will suffice. There is a good chance they already know why, but they may ask why. Even though you may be fuming, keep it professional and avoid personal attacks.
Make a clean break.
As soon as the conversation ends, it’s time to cut ties officially. Under your client agreement, terminate your relationship and request a transfer of your assets to your new advisor.
Of course, if you’re dealing with a scammy advisor, the above might not be so easy. Just remember that there are laws that protect victims of crime, both at the federal and state levels. Get to know your rights so that you can better protect yourself. Consult your state attorney general for more information on crime victim rights and resources. You can also contact your nearest U.S. attorney’s office.
Additionally, if you need to create a paper trail, call your advisor’s customer service department. If you call directly, the firm’s customer service department will likely record your conversation. As a result, you can report any suspicions of wrongdoing to the firm.
Most importantly, there’s no need to continue communicating with the advisor.
What to Do If A Financial Advisor scammed you
A scam can be frustrating and frightening. Your identity, your money, or even your sense of security may have been stolen. Fortunately, you are not alone, and steps can be taken to help you recover, according to the Federal Trade Commission.
The scammer received a payment:
- Get in touch with your bank or credit card company as soon as possible. Tell them you were scammed and ask them to freeze your accounts and reverse fraudulent transactions. If you act quickly, you may be able to get your money back.
- File a report with the Federal Trade Commission (FTC). Among the government agencies responsible for investigating scams is the FTC. Reporting the scam will help them catch the scammers and prevent other people from being victims. Online reports can be filed at https://reportfraud.ftc.gov/.
You gave a scammer your personal information:
- Your passwords need to be changed immediately. These include the passwords to your bank accounts, credit cards, email accounts, social media accounts, and anything else you use online.
- Place a freeze on your credit report. This will prevent the scammer from opening new accounts in your name. You can freeze your credit with all three major credit bureaus: Equifax, Experian, and TransUnion.
- Monitor your credit report for any unauthorized activity. The three major credit bureaus offer free credit reports once a year. You can also sign up for a credit monitoring service, which will keep you informed of any changes to your credit score.
The scammer has access to your computer:
- Run a virus scan. There is a large selection of free antivirus programs online. You should run a scan to see if the scammer has installed malware on your computer.
- Be careful about what you click on. Phishing emails and websites often trick people into clicking on malicious links. Never open attachments from emails you don’t recognize, and don’t click on anything you don’t recognize.
Report the advisor, but get your ducks in a row first.
For more information about your options for recovering your losses, contact the relevant financial regulatory body and seek legal advice. Along with the aforementioned FTC, the scam should also be reported to the appropriate authorities, such as the:
- Securities and Exchange Commission (SEC)
- Financial Industry Regulatory Authority (FINRA)
- Commodity Futures Trading Commission (CFTC)
- National Futures Association (NFA)
As a result, others will be protected from falling victim to the same scam in the future.
Seek professional help.
For more information about your rights and options, consult a reputable financial advisor or lawyer. If you can navigate the legal complexities, you may be able to recover your losses.
Beyond Escape: Protecting Yourself from Future Predators
Once you’ve escaped the scam’s clutches, you must fortify your defenses against future attacks. To help you, here are some tips:
- Do your research. Make sure you thoroughly research any financial advisor’s credentials, experience, and disciplinary actions before hiring them. You may want to check with regulators like FINRA and the Securities and Exchange Commission.
- Ask questions. If you have any questions, don’t be afraid to ask. An advisor who is good at their job will welcome your inquiries and explain everything clearly and clearly. You should never invest in something you do not fully understand.
- Beware of unsolicited offers. Don’t fall for cold calls, emails, or seminars promising easy money or quick returns. A scam often begins with these steps.
- Diversify your portfolio. Do not rely solely on one investment. Instead, your investments should spread across a variety of asset classes. In addition, you won’t rely on one advisor to manage your wealth.
- Educate yourself. Knowledge is power. Learn as much as you can about personal finance and investing. You’re less likely to be scammed the more you understand.
Finally, Keep Your Expectations in Check
Sadly, it is unlikely that you will be able to get all your money back. According to most experts, it’s rare to receive anything more than pennies on the dollar. Although you might get something back if you report it, you’ll definitely get nothing if you don’t.
However, a civil lawsuit, arbitration, or mediation may help you recover some of your lost assets. Just remember that civil lawsuits can cost money and take a long time to resolve. Even after you win, it might still be difficult for you to collect your judgment.
In addition, some types of theft may qualify for a tax deduction. There is an explanation of what to do in Internal Revenue Service Publication 547, Casualties, Disasters, and Thefts. The special tax rules that were enacted after the Madoff scandal now apply to Ponzi scheme victims as well.
FAQs
What are financial advisor scams?
They often involve deceptive practices employed by individuals or companies pretending to be financial advisors. From Ponzi schemes to misrepresenting investments, they aim to steal your hard-earned money.
What are common types of financial advisor scams?
There are many types of financial advisor scams, including:
- Ponzi schemes. Despite promising high returns with little risk, they pay older investors with money from new investors. In the end, the scheme collapses.
- Affinity fraud. Scammers sell unsuitable investments by exploiting social groups such as churches and community organizations.
- Pump and dump. Exaggerating the price of low-quality investments and selling them off with losses to other investors.
- Misrepresentation. An advisor may exaggerate their credentials, experience, or the risks and returns of an investment.
- Unsuitable investments. You are being recommended products that are too risky or not aligned with your goals and risk tolerance.
- Churning. Regardless of whether it benefits you, this involves excessive trading for commissions.
- Identity theft. Making unauthorized transactions or opening accounts using stolen personal information.
How can I spot a potential financial advisor scam?
The following red flags should be looked for:
- Unsolicited contact. Be cautious if you receive an unsolicited call, email, or mail from an advisor who offers investment advice.
- Exaggerated promises. It’s a red flag if an investment promises high returns, “guaranteed profits,” or secret investment plans.
- Pressure to act quickly. Scammers often rush you into a quick decision when you don’t have time to research.
- Lack of credentials or licensing. Your state securities regulator or FINRA (Financial Industry Regulatory Authority) can verify the advisor’s credentials and background.
- Unregistered investments. Avoid investments not registered with the SEC (Securities and Exchange Commission).
- Insider information claims. If someone claims to have insider information, it’s likely a scam.
- Vague or unclear fee structures. Advisors should always be upfront and transparent about their fees and commissions.
- Reluctance to answer questions. If you’re looking for a genuine advisor, he or she should be able to answer your questions openly and honestly.
How can I protect myself from financial advisor scams?
You should consider the following when protecting your money:
- Do your research. You should always check an advisor’s credentials with FINRA (Financial Industry Regulatory Authority) or SEC (Securities and Exchange Commission).
- Ask questions. Don’t be afraid to ask if you have questions about your advisor’s qualifications, fees, and investment strategy.
- Get everything in writing. Document all agreements and recommendations.
- Be cautious of unsolicited offers. Whenever you receive an unsolicited call or email from a financial advisor, don’t respond.
- Don’t give out personal information. Your financial information should be shared with caution.
- Monitor your accounts. Keep an eye on your statements and report any suspicious activity immediately.
- Trust your gut. Walk away from an advisor or investment opportunity if something feels off.
Image Credit: Leeloo The First: Pexels
