Financial Advisor and Investment Consultant Scams

Investigate Thoroughly Before Hiring a Financial or Investment Advisor

Doing your homework and taking great care in choosing your Financial Advisor or Investment Consultant is the best way to avoid getting scammed.  Finding an objective, competent and ethical professional will help you avoid significant problems in the future. Here are a few tips to help you in your search:

  • Make sure the have the proper licenses and/or certificates and are in good standing with SEC (Securities and Exchange Commission).
  • Check to see if they have a rating with the Better Business Bureau (BBB)
  • Interview at least 3 Advisors and check their references
  • Verify at least one of the educational institutions from which they were granted a degree.
  • Never work with an advisor without a written and signed contract specifying the services to be rendered, the cost of those services, how the advisor will be compensated, etc.
  • Don’t commit to a contract that does not allow either party to terminate the contract quickly without anything more than a very small administrative termination charge.
  • Do not allow your agreements with an advisor to be transferred or assigned to another advisor without your written consent. Under such circumstances, you should be allowed to terminate the contract without any penalty.
  • Never allow your agreements with an advisor to be transferred or assigned to another advisor without your written consent. Under such circumstances, you should be allowed to terminate the contract without any penalty.
  • Never make substantial advanced payments to an advisor for work that is not yet completed.
  • Don’t share investment profits or capital gains with your advisor.
  • Make sure you are receiving a justifiable value in exchange based on performance of your investment and not just the gross amount of assets you possess.

 Summary*

Securities firms that recommend or manage investments for their clients are sometimes referred to as “Brokers,” “Broker-Dealers,” “Investment Advisors,” or “Registered Investment Advisors.” These firms are required to register either with the states or with the U.S. Securities and Exchange Commission (SEC).

To register with the SEC and with many of the states, brokers and investment advisory firms use Form ADV. Form ADV contains required disclosure information on these registered investment firms and their operations. According to regulations, Form ADV must be kept up-to-date, and it must contain disciplinary information about the firm and its key personnel.

In most cases, laws and regulations require SEC registered firms to do on-line filing and updating of Form ADV. These completed on-line Form ADVs are maintained by the SEC’s Division of Investment Management in a publicly accessible, on-line electronic filing system called the Investment Adviser Registration Depository (IARD).

The states may also utilize the IARD on-line Form ADV registration process to register advisory firms at the state level. If an advisory firm is required to register with a particular state in some format, such as hardcopy, that state may only encourage and not require an advisory firm to utilize on-line registration via the IARD system. Since a state’s IARD registration may be voluntary, you may not find a firm’s registration information online. For such advisory firms, you might obtain a hardcopy of their up-to-date Form ADV directly from the advisory firm itself.

Advisory firms have no good reason not to provide their up-to-date Form ADV to you. They may be legally compelled to do so. Any hesitation on their part could be an indication of the degree of openness they use when they conduct business with their clients and an indication of other potential problems.

To search on-line for the Form ADV of a particular advisory firm go to http://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx  and follow the directions. The IARD system is flexible and lets you search by Firm IARD/CRD Number, Firm SEC Number, and Firm Name (or part of a firm name). For direct access to this search functionality go to: http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx

*this summary was written using information from theskilledinvestor.com

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