If you’re offered a special deal that is available only for a short period of time, don’t rush in. Image: cosma/Shutterstock.com
After I wrote a recent article on Ponzi schemes, I began to think about other types of investment fraud. That led me to the websites of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). What follows is what FINRA considers to be the “Red Flags of Fraud”.
• Guarantees. All investments carry some degree of risk, so be suspicious when you are offered guarantees of a specific level of investment performance.
• Unsolicited offers. When you receive an unsolicited offer by whatever medium (e.g., cold calls, social media post, etc.) ask yourself, “Why am I getting this communication.” Unsolicited offers are a way scammers try to get you engaged.
• Unregistered products and unregistered investment representatives. Ascertain whether the product and its salesperson are registered with the regulatory agencies.
• Overly consistent returns. Most investments go up and down. Be careful with an investment that remains the same (or steadily increases), especially during turbulent times.
• Overly complex strategies. If you don’t understand how an investment works, you shouldn’t be investing in it. A former Chairperson of the SEC said, “Never invest in anything you don’t understand”.
• Account discrepancies. Are your account statements complete and understandable? You should be sure that account activity is consistent with your instructions and that you know where your assets are held.
• A pushy salesperson. If you’re offered a special deal that is available only for a short period of time, don’t rush in. FOMO should not be the prime impetus for investing.
Both FINRA and the SEC offer tools that are helpful in avoiding fraud.
• On the FINRA website (https://finra.org), you can find a “broker check” feature that lets you see if there are any complaints about a specific broker or their firm.
• From the SEC website (https://sec.gov), you can access investor.gov which has a similar feature, as well as a lot of other information about investing.
• FINRA has a scam quiz at scammeterquiz.nga.finra.org.
• You can also find similar broker check features on the websites of individual state securities agencies.
There’s a lot you can do to keep yourself from being victimized by investment scam artists – starting with staying vigilant and informed. Start by thoroughly researching any investment opportunities and the individuals or companies promoting them. Again, be wary of deals that promise high returns with little or no risk, as they are often too good to be true.
Always verify the credentials of investment advisors and ensure they are registered with legitimate regulatory bodies.
Additionally, trust your instincts; if something feels off or you feel pressured to invest quickly, it’s best to walk away. Finally, consider consulting with a trusted financial advisor before making any significant investment decisions to get an objective opinion.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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