The 4 Best Ways to Avoid Financial Scams

Look hard enough at any news source and sooner or later, you’re likely to see something somewhere about people becoming victims of a financial scam.

Perhaps it’s an athlete whose unethical former manager cost him millions, or a Ponzi scheme that’s victimized thousands of senior citizens. Whatever the case, financial scams are real threats. In fact, the SEC recently busted a $1.2 billion retail scheme that victimized nearly 8,500 people. What’s more is the FTC says that fraud complaints have increased by 60 percent in just the last five years.

So, how can you prevent yourself from becoming the victim of a financial scam? While you may not be able to safeguard yourself 100 percent, experts agree that taking these four key precautions are the best course of action.

#1: Pick the Right Financial Advisor

Ideally, everyone should have a financial advisor to coach and guide them on any current and future investments. However, selecting the wrong type of financial advisor is the first step to becoming a victim of fraud.

This is why before settling on an advisor, it pays to do your homework on that particular professional. Certain resources, like BrokerCheck and the SEC’s Investment Adviser Public Disclosure, can help you verify that any potential advisor is licensed as well as whether or not there are any past complaints that have been filed against him/her.

Not all complaints should be considered deal-breakers, but they’re worth noting to gain more of an understanding about who you could be working with. If the advisor you’re considering doesn’t come up when you search registration records, we’d advise you to refrain from working with them. Other things you’ll want to go over with any potential advisor is where your money will be kept and how the advisor is paid.

#2: Be Very Careful With Investments

If an investment opportunity promises high returns, but you don’t understand it, you could be getting yourself into a big financial mess.

Yes, the main goal of any investment is to get much more at the end of the day than what you initially put in -– that’s why the promise of a high return is so appealing to many. But, it’s also common for scammers to lure consumers into unethical deals with the promise of a high return. The hope is that by making the opportunity seem overly complicated, the consumer will just trust them on how good of an opportunity it is.

Here’s something to keep in mind: information about any investment is usually available via SEC filings, so make sure you tap into this resource before making a decision on anything. If you can’t find the appropriate paperwork, don’t trust the opportunity presented before you.

#3: Check Your Statements Regularly

Just as you should be checking your credit report at least once a year to make sure that the data being reported is in line with your consumer behavior, you should also be checking your financial statements.

The nice thing about these statements is that they’re available monthly, so it gives you more of a real-time analysis on where your investments stand, what transactions have been made and more. Even in periods of down markets, you should still make it a point to check your statements. This way, if you notice something that you didn’t sign off on, you can address it immediately – both with your broker and possibly even a regulator.

#4: Use Common Sense

Like we said above, scammers try to hook you on the promise of high returns. Other tactics, like urging you to act fast while rates are at their best, are aimed at pressuring you into certain investments.

With that in mind, if something seems just too good to be true, that’s because it probably is. We’d advise you to be very cynical when it comes to investing your money, from the time at which you hire a financial advisor to where and how you invest in the days following. Until you’re 100 percent sure and comfortable with the financial decision that you’re making, we’d advise you not to do anything with your money.

Do your due diligence, proceed with the proper caution and you can avoid becoming a statistic. It’s your money, make sure you know what you’re doing with it.


Ethan Warrick
Wealth Authority