Have you, a family member, a client or a friend ever been approached to make an investment where you were not sure if the person soliciting you to invest was trustworthy? If so, you are not alone. In fact, in response to the increase in fraudulent investment schemes, the SEC has issued two investor alerts within the space of two weeks during June. These investor alerts, and other information available from the SEC and FINRA (the Financial Industry Regulatory Authority) provide guidance to help you avoid investing in fraudulent investment scams through unscrupulous individuals.
The first alert highlights certain tips to spot fraudsters trying to lure unsuspecting people into fraudulent investment schemes. Often these fraudsters are not properly licensed to sell securities or to provide investment advice but exaggerate or even lie about their credentials. They may lie about or embellish their education, employment, licensure, honors and expertise. They may appear to be genuine and trustworthy, even appearing on investment oriented television shows and using social media to create an appearance of legitimacy.
The second alert, although targeted to senior citizens, provides five “red flags” that all investors should watch for in making investment decisions. Warnings signs of fraudulent schemes include promises of high returns on an investment with little or no risk, solicitations to invest by unlicensed persons, persons with a poor professional history (such as a high number of customer complaints, a history of being terminated, or personal bankruptcy), pressure to make a quick investment decision, a lack of verifiable information about the prospective investment and issuer, and “free lunch” seminars that include or are followed by hard sell pitches from the sponsors of such seminars. Click on the links below to read the SEC’s investor alerts.
It is important to understand the differences between various investment professionals, including those who sell you securities and those who provide advice regarding investments in securities. There are a lot of generic titles that a person can use without having any professional license or designation, such as financial analyst, financial consultant and wealth manager. Stockbrokers, or persons who are compensated for selling securities generally must be registered with the SEC and be a member of FINRA and their status can be checked on FINRA’s Broker Check (see link below). Brokers must pass certain exams and are subject to regulation, including the obligation to make investment recommendations that are suitable for their clients.
Investment advisers generally provide clients advice about securities and other investments for a fee. They also must be registered with the SEC or a state securities administrator (depending on their size or the assets they manage for their clients). Investment advisers also must pass certain exams and owe certain fiduciary obligations to their clients. You can research an investment adviser’s background on the SEC’s Investment Advisor Public Disclosure (IAPD) online database (see link below).
Other investment professionals, while not SEC registered, may possess credentials from certain industry organizations, such as the Certified Financial Planner Board and held to the standards of the organization, such as the Certified Financial Planner Board’s Standards of Professional Conduct.
The bottom line is that in addition to investigating the worthiness of a potential investment you should research the background of anyone urging you to invest your hard earned dollars with or through them. Reputable professionals welcome the scrutiny and want you to understand that they have worked hard to establish their credentials. Both the SEC and FINRA have a wealth of information available to guide you in selecting investment professionals and making investments.
Alert on Exaggerated Credentials
5 Red Flags of Investment Fraud
FINRA BrokerCheck
IAPD Check
