Financial Advisor Fraud Lawyer

Common Types of Financial Advisor Fraud

Financial advisor fraud includes theft, unethical behavior, dishonesty, and other misconduct by your financial advisor and can take many different forms. Financial advisor fraud can include, but not limited to, the following:   

Ponzi Schemes

According to the Securities and Exchange Commission (SEC), “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.” The Ponzi scheme is a classic scam and incorporates components of other scams as well. The investment proceeds in this classic scam are simply the new investors' monies doled out to existing clients. The insiders of the Ponzi scheme, which can include financial advisors, siphons money off to fund an extravagant lifestyle.

Churning

Financial advisors can be commission based which mean they are paid when their clients buy or sell a security. This can motivate them to make unnecessary trades to increase their commissions. Churning involves the financial advisor making frequent buy and sell trades, which not only costs the customer in commissions but usually results in sub-optimal investment returns.

Lies or Misrepresentations Regarding an Investment

Financial advisors can lie and misrepresent the quality of an investment. For example, in The Wolf of Wall Street, risky penny stocks were being represented and sold as low risk high reward. Lies and misrepresentation about investments are common and can be extremely harmful to investors. The advisors and brokers make millions in commissions and the investors often loose their entire investment. 

Lies and misrepresentations regarding their credentials or education is another way financial advisors can scam the unsuspecting public. There are dozens of financial planning designations such as certified financial planner (CFP), registered investment advisor (RIA), certified public accountant (CPA), chartered financial analyst (CFA) and many more. The public may not be aware of the designations, ethics, or requirements for certification and thus may be receiving advice from someone with no education, experience, or background in the investment advising field. It’s quite easy for someone to hang up a shingle and start doling out advice. The scammer can then close up shop and walk away with the proceeds or swindle the unsuspecting clients with fake products.

Promising or guaranteeing unrealistic returns. The popular axiom, “if it’s too good to be true, it probably isn’t” is usually accurate. It is unlikely that an advisor can offer a client returns that are unavailable to the rest of the world. 

In addition to outright fraud or theft, financial advisors may act negligently or are just plain terrible at their jobs .Here are some Signs You Have a Terrible  Financial Advisor. 

Protect Yourself

• Research your financial advisor's background. Look for any any disciplinary actions or complaints. These websites can help detect unscrupulous advisors: www.finra.org/brokercheck, www.adviserinfo.sec.gov, www.nasaa.org, www.naic.org, and www.cfp.net.

• Always ask how your advisor is compensated. Commission, fee, or a combination? 

• Ask for the advisor's ADV Part II document which explains the professional's services, fees, and strategies.

• Do not give the financial advisor a power of attorney or ability to make trades without first consulting you. Require every financial action to be cleared with you first. 

• Make sure your statements include not only the advisor’s, but also from the financial institution which holds your money and investments.

If you have lost money as a result of your financial advisors, contact us to discuss options for recovering your losses.