We all do it. We use internet search tools to find everything from restaurant reviews to advice on businesses we may want to work with.
But there’s a false sense of security with a company’s online presence, and just because a website looks legitimate doesn’t mean you are not putting yourself at risk.
In our constantly evolving digital world, financial crime continues to be a pressing concern, halted only by our due-diligence and understanding how to avoid these scams in the first place.
From fraud to identity theft, these cyber criminals go after individuals and businesses alike, and they do not care who their victim is.
These crimes, typically orchestrated by highly sophisticated criminals, can leave victims in financial ruin, coping with emotional stress and depression, and trying to put the pieces of a shattered vision of their financial future back together.
For individuals looking to engage with financial and investment firms, the stakes are even higher. As you search for a trustworthy firm or advisor, it’s crucial to be aware of the common financial crimes associated with the industry, recognize warning signs, and take proactive measures to protect yourself from potential scams.
Investment Fraud: This includes Ponzi schemes, cryptocurrency schemes, private equity schemes, pyramid schemes, and other deceptive practices where criminals convince individuals to invest money with the promise of high returns, only to steal their invested money.
Securities Fraud: The fraudulent advisor or firm provides false information about stocks, bonds, or other investments, often resulting in significant losses for the investor.
Identity Theft: The scammer aims to steal personal information, including Social Security numbers, bank account details, and credit card numbers to make unauthorized transactions or open accounts in your name.
Embezzlement: A trusted advisor or employee misappropriates funds for personal use. The victims are lured into thinking they are being well taken care of, when in reality they are having their money stolen.
Money Laundering: This crime involves making illegally-gained, large sums of money, appear legitimate. An investor may be involved in these schemes unknowingly, placing their funds at risk. Most money laundering is part of a larger crime such as drugs, human trafficking, or illegal smuggling.
How to Protect Yourself When Searching for Investment Firms
When you start your search for a financial or investment firm, it’s important to do your homework.
Strong due-diligence is the best way to protect yourself, and here are few things you can easily do before providing your information and engaging:
Research the Firm’s Background: Start by investigating the firm’s reputation and don’t be afraid to ask them for a few references. Lean on trusted sources such as the Better Business Bureau for company ratings information, or even Google for historical details on the firm.
FINRA’s BrokerCheck is a great resource for reviewing the credentials of a prospective financial advisor. Here, you can check for any past legal or regulatory issues they may have had. Every legitimate investment firm or financial advisor should be licensed at some degree.
Understand the Fees: Reputable firms do not hide fees, nor do they elude disclosing them. Regulations are in-place that require firms to properly disclose information on the firm’s business, ownership, business practices, fees, conflicts of interest, etc.
Specific forms such as the Uniform Application for Investment Adviser Registration (Form ADV) and the Client Relationship Summary (CRS) are typically available on a firm’s website for review.
Beware of scammers that will try to lure prospects in with a promise of no fees or extremely low commissions yet avoid supplying adequate documentation to validate the good deal claims. Remember, if it sounds too good to be true, it probably is.
Watch for Red Flags in Communication: Be suspicious of advisors who pressure you into making decisions quickly or promise unusually high returns with little risk.
A pushy sales-pitch, a demanding demeanor, and even poor grammar are red flags that this firm or person is not working in your best interest. You’re better to pause the situation and look into it closer.
Legitimate firms will always take the time to explain investment options and risks thoroughly.
Examine Their Security Measures: Given the rise of cybercrime, any firm handling your money should have a robust cybersecurity practice in-place.
Don’t be afraid to ask about their data protection protocols and how they ensure the security of your personal and financial information.
Check out how Plancorp keeps your data secure here.
Verify Physical Addresses and Contact Information: It sounds simple, but it is definitely effective. Verifying addresses and contact information on the firm or person you are speaking to can quickly shed light on their legitimacy.
Several fraudulent investment and financial firms operate solely online, making it very hard to track them down once your funds disappear. Verify the firm’s physical address, and if possible, visit their office.
Read the Fine Print: Before signing any agreement, carefully read through all the terms and conditions. If anything is unclear, ask for clarification.
According to a recent Deloitte survey, 91% of Americans agree to terms without reading them, so make the effort to be in the other 9%.
In general, here are a few things to keep in mind for any transaction that may involve your personal identity or access to your money:
Stay Up-to-Date on Popular Scams: Keep yourself informed about the latest investment fraud schemes. Scammers frequently adjust their tactics to appear legitimate.
For investment firms, following the news and updates from the SEC or FINRA will help you stay ahead of evolving scams. Scammers are getting very technical and tricky—check out one of the latest scams called Pig Butchering.
Beware of Unsolicited Opportunities: Random emails out of the blue with a “too good to be true” deal should be their own red flag.
For any financial investment opportunity where they solicit you, be skeptical. Scammers often prey on particular areas and demographics in hopes of catching one off guard who may be looking for advice. If the opportunity seems urgent or exclusive, it’s likely a scam.
Be Cautious with Online Investment Platforms: In the digital age, many investment platforms operate online, offering convenient access to the market.
However, not all platforms are legitimate. Be sure to research and verify the platform’s reputation and registration with regulatory bodies before investing your money.
Keep Personal Information Private: Avoid sharing sensitive information such as Social Security numbers, bank account details, or credit card numbers over email or phone unless you are certain you’re dealing with a legitimate firm.
Use secure, encrypted methods to communicate and share documents with your investment firm. If the firm or person does not have a secure method for transferring information, hang up and find someone else.
These days, reputable firms have a fantastic process in-place to protect you and your interests.
Review Your Account Statements: If you’ve already chosen a financial or investment firm, ask for regular account statements and monitor your portfolio’s performance.
Compare the statements with any online account you have access to, and don’t hesitate to ask for clarification if something doesn’t add up.
If you suspect that you have become a victim of fraud or that a financial crime is taking place, you need to take immediate action. Time is of the essence, and there may be a lot at risk the longer you wait. Consider these options for your next move:
Contact the Authorities: Report any suspicious activity to the SEC, FINRA, or your state’s securities regulator. This will trigger an investigation, and if a crime is confirmed, further legal action may be taken.
Freeze Your Accounts: If you suspect that your accounts are compromised, contact your bank or investment firm immediately and request a freeze on any further transactions.
Document Everything: Keep records of all your communications with the suspected firm, including emails, phone call logs, and signed documents. This documentation will be helpful if a legal investigation ensues.
Seek Professional Help: Depending on the severity of the fraud, consider working with legal and financial professionals who can help you recover lost funds and protect your financial future.
If you are unsure about the legitimacy of a firm or suspect fraud, it’s wise to consult with an attorney who specializes in securities law or financial crimes. They can help review documents and offer legal protection against potential scams.
The landscape of financial crimes continues to evolve at an alarming rate and is a multi-trillion-dollar epidemic. Technology and artificial intelligence are unfortunately allowing criminals to be more savvy and inventive with their deceit, so be sure you are taking proactive steps to protect yourself.
As you evaluate any company, especially one that will be doing financial work for you, don’t be afraid to ask tough questions about their registration, compliance with security laws, and the basics about how they get paid so you fully understand their incentives.
Our helpful worksheet outlines the key questions to ask in financial advisor interviews, and helps you determine the right answers for your personal needs.