How to Spot a Fake Financial Advisor Scam

How to Spot a Fake Financial Advisor Scam


If you’re thinking about sitting down with an advisor to talk about your financial future, be cautious. Scammers who pose as financial advisors and credit counselors will steal your information–and clean out your accounts.

Before you hand over any information, look for these red flags. And remember, trust your instincts! If something seems off in any way, it’s better to walk away. You might feel embarrassed for being so suspicious. However, that’s nothing compared to the shame that most fraud victims feel after they’ve been robbed.

False Promises, False Credentials

Say it with me: If it sounds too good to be true, it is!

If you get an unsolicited email, phone call, social media message, or text about a great financial opportunity or free credit counseling, beware. These messages might be a simple form of phishing–messages designed to get you to supply personal information.

Always do your homework. Check the URL, look up the company or person independently online, or navigate directly to the site rather than clicking through a link.

If you find the name of a financial advisor through a recommendation or an online search, you may not be in the clear. Double-check their credentials before proceeding. Anyone who claims to be able to do the impossible–incredible returns on investment, for example, or increasing your credit score by 100 points overnight–is probably lying.

Ponzi Scheme Warning Signs

If you are approached by someone who claims to be able to deliver huge returns at low risk, that’s a red flag. If that fast-talking financial advisor encourages you to bring along a friend or two to hear about this amazing opportunity, then you’ve almost certainly discovered a Ponzi scheme.

A Ponzi scheme or pyramid scheme is simple yet effective. The promise of higher-than-market returns lures in new investors. The people at the top are paid out by the money from the newcomers. As long as more and more investors get recruited, the scheme can keep going. But once it starts to collapse, everybody loses out.

Excessive Stock Trading

If your financial advisor makes a lot of stock trades very quickly, that’s rarely a good thing. In the business, this is known as “churning.” Essentially, the scammer is performing unnecessary trades in order to rack up as many fees as possible.

Those fees get deducted straight from your checking account, and there’s little you can do to get the money back. After all, you agreed to pay a commission.

This scam relies on investors who do not understand the stock market. They want you to trust them to handle the messy, confusing business of stock trading.

In theory, you can just sit back and enjoy the profits. In practice, however, whatever small gains you might have gotten from these trades will be wiped out by commissions.