Financial advisor fraud can be devastating, because a scam could lead to a loss of a significant portion or all of your hard earned savings. The sad part is that so many people are scammed by the same scams over and over again. Knowing what to look for will help you to avoid legal hassles and heartache. Here are 4 warning signs of financial advisor fraud:
Sign #1 - Big Push for One Investment
A tell tale sign of financial advisor fraud is when your advisor insists that you invest in one stock, annuity or mutual fund. The truth is that advisor probably gets a commission for selling you a particular product and they are not interested in whether you lose all of your money and go broke as a result. Diversifying your portfolio is basic, and anyone who tries to push you towards risking it all on one investment is likely trying to scam you.
Sign # 2 - Soliciting You to Join Business Opportunities
Investing in businesses is a valid investment strategy, but be wary of any financial advisor who solicits you to join a business where they may have a financial interest in. For example, if you're presented with a multi-level marketing business opportunity, you can be sure that your advisor will be above you in the pyramid scheme where he'll be able to take advantage of you. These opportunities are often scams as well, and you should steer clear of them.
Sign #3 - Requires Upfront Fee for Bankruptcy Filing
By the time you realize a petition mill scam, it’s often too late. The “financial advisor,” who is really an imposter, offers to help you prepare bankruptcy paperwork for a fee. You have to agree to represent yourself in the proceedings. The paperwork is often not sufficient to protect you, and the advisor disappears with the large initial fee you paid to the them. Other aspects of the petition mill scam include directing payments to the advisor who promises to lower your mortgage payments and to take care of all your debts through settlement or other means. The debt is never taken care of, and the advisor holds runs off with the money.
Research your advisors carefully before choosing one. It’s appropriate to conduct a criminal background check, as well as to check with organizations like the Financial Industry Regulatory Authority. Don’t pay upfront fees to someone to prepare your bankruptcy filing, unless it’s a licensed bankruptcy attorney.
Sign #4 - Doesn't Attend 341 Meeting
A 341 meeting is a meeting of creditors after a bankruptcy has been filed, in which the financial affairs of the debtors is reviewed. Your financial advisor should be present, and if not, it could be because that advisor has scammed you. It could be an indication of a petition mill scam as well.
Take the necessary precautions to avoid financial advisor fraud by asking many questions upfront and doing your research. Get referrals from family, friends and others who have had personal experiences with advisors.