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Investment Advisor Red Flags

Updated: Jun 8

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Are you nervous about retirement? Do you want to know how to vet your investment advisor and know would be considered suspicious to industry insiders?


We have all heard horror stories about financial advisors blatantly stealing the retirement of the people they were supposed to be serving. Unfortunately, these con artists are very good at what they do. If you see any of these red flags during your financial advisor search, then tread very carefully.


Red Flag #1-Disclosures. The first and easiest part of a financial advisor background check is going to www.finrabrokercheck.com and seeing if the financial advisor is in good standing with FINRA (financial industry regulatory authority). Here you can see if the advisor is registered in your state, their licenses, and if they have any disclosures. Disclosures are essentially black marks on an advisor’s record. If the advisor has disclosures, then be sure to investigate thoroughly. These disclosures can range from a violation resulting in criminal action, paying a fine, or varying suspensions. If there are disclosures on the investment advisors record you probably want to stay clear. However, just because there are no disclosures on their record does not mean they are 100% above water. This is just passing the smell test.


Red Flag #2-Performing services they are not licensed to perform. Investment advisors are licensed to perform portfolio management, give retirement advice, and conduct retirement planning. Investment advisors are not licensed to execute estate planning. An investment advisor may have considerable knowledge regarding estate planning that adds value to their investment advisory license. However, the Investment advisor must draw line when it comes to drafting documents for estate planning. These functions can only be performed by an attorney. Be weary of any investment advisors trying to perform these tasks in order to earn your business.


The FBI is currently launching a search for an investment advisor in my hometown of Atlanta for stealing $10M dollars. The investment advisor is accused of running a Ponzi scheme. Upon review, the investment advisor was also doing extensive estate planning, something he was not licensed to perform. Unfortunately, those clients will probably never see their retirement dollars ever again. Please be weary of any financial advisors stepping outside of the scope of their license.


Red flag #3- guaranteeing a return. This is the most common characteristic among financial advisors that steal from their clients via Ponzi Scheme. A Ponzi scheme, an operation that involves stealing from client #1, and using new funds from client #2 to try and pay back the original investor.

How do you identify a Ponzi scheme? The easiest way for an investment advisor to facilitate a Ponzi scheme is to “guarantee” investors a “safe” above market rate of return. These Ponzi schemes often involve investment advisors people feel “lucky” to be allowed to do business with. Most often they have zero disclosures on their FINRA record.


Once investors begin investing, there is often pressure to continue reinvesting. Due to the fact the investor originally feels lucky to be involved with such a “prestigious” firm, the investor is taken for even more then their original sum invested.


The final ingredient is investor greed. Without investor greed investors would be wearier of consistently high returns even during bear markets. If above average market returns cannot be explained in layman terms, then there is probably something not above board occurring.


How can you protect yourself from being taken advantage of? We caution all investors to never write any checks directly an investment advisor. All your accounts should be in your name with a custodian that you trust. Demand from yourself that all your funds are transferred by you directly to custodian that you recognize. Lastly, find an investment advisor that has the heart of a teacher. If they are making an effort to teach you what is occurring, than the chances of them stealing from you are far less.


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