There are more than 300,000 professional financial advisors in the U.S. It’s fair to say that a majority are dedicated to helping their clients achieve their financial goals. However, some unethical individuals seek to take advantage of clients’ trust and lack of financial knowledge to benefit themselves.
You should look for any signs of fraudulent or unethical practices when working with a financial advisor. These include:
• Not receiving any reports on your investments, or only getting them directly from your advisor.
• Your advisor completing forms for you. A well-intentioned but careless financial professional can get your information wrong; an unethical professional might falsify data.
• Receiving information from your advisor not on company stationery or sent via a personal email address. Your advisor could be offering you an opportunity that his employer does not know about.
• Your advisor pressuring you to make quick decisions on a recommended transaction, which may be described as a “limited time offer” or presented when you are going through a major life change, such as a personal loss.
• Your advisor offering an opportunity that sounds too good to be true — such as a high-return investment without risk — or declining to provide details about the opportunity because “it’s too complicated.”
These behaviors could be red flags that you are vulnerable to financial abuse. Fortunately, there are several simple steps you can take to protect yourself from unscrupulous advisors:
• Ask your financial professional if they are a fiduciary. This obligates them to base their recommendations on your best interests, fully disclosing any conflicts of interest (actual, potential or perceived). If your advisor avoids the question or doesn’t understand the term, go elsewhere.
• Get confirmation, in writing, that the advisor’s employer or company approves and supervises recommended investments. If your financial professional is a sole practitioner, verify that she carries professional liability insurance.
• Always ask your advisor how much a proposed transaction will cost you and if he will get paid from the recommended transaction.
• Tell your advisor when you don’t understand something. Ethical professionals will be happy to explain. If you don’t understand the explanation, ask for it to be put in simpler terms. (StatePoint)
• Make sure you receive regular statements from independent third-party sources or verify that the investment manager is audited annually by a reputable independent accounting firm.
• Never leave blanks in paperwork that someone else could fill in without your knowledge or consent. Ask your advisor to send you copies of all final, submitted documents.