Protecting Yourself from Investor Fraud - MetroFamily Magazine
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Protecting Yourself from Investor Fraud

by Sue Lynn Sasser

Reading Time: 3 minutes 

You've heard the old adage before: If something sounds too good to be true, then it probably is.

This advice is especially appropriate for recognizing potential investment schemes.

With the downturn in the economy and a slowly recovering stock market, some people are looking for a quick trick to make a few dollars—often at your expense.

One of the best ways to safeguard against investment fraud is relying on a qualified investment advisor. However, just because someone is a licensed professional does not guarantee they will use ethical practices when dealing with an investor’s money.

Investor claims of wrongdoing against investment advisors have jumped 71% since 2008, with 4,481 cases filed in the first six months of 2009, compared with 2,614 cases filed in 2008, according to a recent report from the Financial Industry Regulatory Authority (FINRA).

Being aware of the potential for investment fraud and knowing how to recognize it may save you thousands of dollars and millions of heartaches. Like anything else, there are no guarantees but taking some precautions will reduce the potential of falling victim to investment schemes that can wreck your family’s finances.

Following are a few suggestions to help protect your family and yourself:

  • Investigate before you invest. A recent survey conducted by the Investor Protection Trust shows the vast majority of people using a financial advisor never checked to see if their advisor was reputable. One source of information is BrokerCheck ( This free online tool provides information on the professional backgrounds of current and former FINRA-registered brokerage firms and brokers. It includes a summary of their professional background, registration/license status, and the behavior of registered firms and individual brokers. More specifically, it contains information on employment, terminations, registrations, criminal events, regulatory actions, revocations or suspensions, civil judicial actions, civil proceedings, pending investigations, written consumer initiated complaints, arbitration, bonding, unsatisfied judgments and liens, and bankruptcy. As evidenced in several of the recent notable schemes, simply relying on friends, colleagues or family members is not enough. Taking a few minutes of your time to check out those references will provide greater confidence that you are working with a competent, honest advisor.
  • Protect your signature. Avoid giving your financial advisor a power of attorney or any other legal authority to sign for your money or your investment Also, avoid signing any blank or partially completed document related to your personal business. Even if you think you made an agreement about what will happen, it will be very difficult to protect yourself if and when problems arise. Furthermore, avoid signing anything you do not fully understand. Remember, it is your money and your responsibility—so ask for clarification from your investment broker or other qualified advisor before signing. Once you sign on the dotted line, be sure to get copies of all signed documents immediately upon signing them. Retain those copies in a safe place for future reference. If you have been defrauded, you will need those original documents to compare with forged statements or agreements.
  • Review your statements. All statements for your accounts should be mailed directly to you, not your investment advisor. While your advisor may receive copies of the forms, you should have the originals for your files for future protection. Be sure to review each statement upon receipt to check for potential errors or problems. Reputable advisors and brokers will welcome your questions and concerns, so ask if anything looks different from what you expected.
  • Trust your instincts. If you feel uncomfortable with any behaviors or practices shown by your advisor, get a new advisor. The most important factor in using a financial advisor is the level of trust between you and your advisor.

Unfortunately, the majority of investors today fail to take these basic steps or second guess any matters related to their financial future. Taking charge of your investments and your relationship with a financial advisor reduces the risk of someone else taking your money. It is risky business to deal with someone who is not committed to putting your interests first.

Sue Lynn Sasser, PhD, is an associate professor of economics at the University of Central Oklahoma.

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