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Common Financial Advisor Scams: How To Identify And Avoid Them

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Handling finances is a challenge that everyone faces in life. So much so that people study to become financial advisors to help people manage their money. But unfortunately, there are those who would take advantage of those who need help in financial management in the guise of being a financial advisor.

According to a study prepared for the FINRA Investor Education Foundation, 80% of American investors reported they were solicited to participate in a fraud scheme. 11% also reported they lost money as a result of fraud. In addition, FINRA’s Financial Fraud and Fraud Susceptibility in the United States report also notes that the investment fraud rate is likely higher than what is reported.

These numbers are quite alarming; thus, people seeking help from financial advisors must be educated to avoid being scammed. They should learn helpful information to protect themselves from scammers who fake financial advising to steal their money. Here are common financial advisor scams and what you can do to identify and avoid them.

Churning or excessive trading

Churning occurs when advisors make trades on their clients’ accounts to generate commission payments. Doing this frequently is rarely in the best interests of a client, especially those planning to have long-term investors. Any advisor should give their client valid reasons for making every transaction.

Churning transfers the investor money over to the financial advisor in the form of unnecessary fees. For the victims, it can result in losing a significant amount of money, defeating the purpose of working with a financial advisor. So transparency is important; thus, always ask your advisor for a reason for each investment they make for you to monitor how frequently they trade and avoid this scam.

Ponzi Schemes

A Ponzi scheme is an investment fraud where a scammer transfers money from new investors over to original investors. Scammers promise clients high returns in this scam, but their money is being shuffled around in reality. Some Ponzi schemes are simple; however, many others are deeply complex, with the most infamous ones lasting for years.

People carry out these scams by tricking investors into buying a seemingly legitimate financial product or investment opportunity. A common example is using a real estate property to hook investors and buy into the scam. You can avoid this by asking for more information about any investment opportunity or financial product presented to you by an advisor.

Any legitimate advisor must be able to explain an investment opportunity to clients thoroughly. Credible financial services companies such as Fortune Financial Advisors assure that their advisors are educated about these things.

Material misrepresentations

Financial advisors have a legal duty to make accurate representations when presenting a financial product or investment opportunity. Accordingly, any financial advisor who makes material misrepresentations or omits important information may be guilty of fraud. They come in a wide variety, but two common misrepresentations are false promises of above-market returns and false promises of low risks.

Scammers will try to convince you with those two things and many others. That’s why you should equip yourself with information. Be proactive and do your own research to ensure the information given to you is legitimate.


Forgery is a serious problem in the financial services industry. It comes in different forms, including forging client documents and signatures on checks or trading authorization forms. To avoid this, be sure to keep track of how your advisor handles your money and consult a reputable investment fraud attorney should you find out that your advisor forged your name on any document.

Final words

Beware of these financial advisor scams. Find and only work with credible financial advisors to ensure that your money is in safe hands.

Author’s Bio:

Deinah Storm

Deinah Storm works in the corporate industry. She has quite a bit of knowledge about finance, loans, and investments as she worked for a finance and investment company before. Today, she finds solace in writing and educating others about wise financial planning, investments, and cash loans.

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