Trapped by a Financial Predator: Escaping the Clutches of a Scam Advisor

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5/11/2024Updated: 5/11/2024

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Have you, or someone you care about, been trapped by a financial predator? Don’t beat yourself up too much—you’re far from alone. Financial scams don’t just target the most vulnerable or gullible among us. The best con artists are the ones who know exactly what they’re doing, whether it’s a debt collection, credit card phishing, or imposter scam.

According to the Financial Industry Regulatory Authority (FINRA), approximately one in ten adults in the United States fall victim to fraud each year, losing billions of dollars in the process. However, only people who report fraud are included in these statistics. There are a lot of folks who do not report such betrayal.

But what happens when a financial advisor scams you? Since you were supposed to trust this person, this particular situation can sting badly.

Having said that, remember there is an escape route before you resign yourself to financial purgatory. Following this blog post, you can break free of a scammy advisor’s clutches and reclaim control over your finances.

Red Flags: Recognizing the Signs of a Scammy Advisor

We need to identify the red flags that scream “scam!” before we can work on escape strategies. Here are some to keep an eye out for:

Guaranteed returns. The promise of consistent, high returns is a classic scammer’s siren song, especially in volatile markets. You should remember that the risk-reward curve exists and that exorbitant returns often come with equally high risks.
Excessive pressure. Do you feel pressured into making quick decisions or investing in something you don’t understand? Before recommending an investment, a legitimate advisor will consider your comfort and understanding.
Unclear fees. Hidden fees, excessive commissions, and a confusing fee structure should always raise red flags. Remember, transparency is a hallmark of a good financial advisor.
Unprofessional behavior. A lack of responsiveness, poor communication, and a lack of interest in your financial goals all signify that someone is not looking out for your interests.
Suspicious credentials. Credentials that are unverifiable, exaggerated experiences, and affiliations with dubious organizations are always red flags. Before entrusting your money to anyone, do your due diligence.
Secretive or evasive. Again, a good advisor will make their investment strategies and fees transparent. Avoid advisors who are vague or dodging your questions.
Unsolicited contact. Don’t be fooled by cold calls or emails promising financial miracles. Typically, legitimate advisors work through referrals or established networks.

How to Escape a Scammy Advisor

As soon as you identify these red flags, you should act immediately. To escape a scammy advisor, follow these steps:

Gather Evidence

In order to protect yourself from fraud, FINRA highly recommends creating a “fraud file.” The file should include all evidence of the fraud and be kept securely.

At the very least, your file should include a written timeline of events, depending on the nature of the scam. The reason? As a result, it will be easier to remember what happened and the name and contact information of the alleged scammer.

When gathering evidence, here are some tips to keep in mind so you don’t forget anything.

Collect all communication. You should include any emails, phone recordings, texts, and documents you received from the advisor.
Document your transactions. Make sure you keep track of all your investments with the advisor, including dates, amounts, and payment methods.
Research the advisor and their company. Search for complaints or disciplinary actions against them on the websites of financial regulators and online review sites.

Cut Ties With Your Financial Advisor

Your next step will be to terminate the relationship with the financial advisor. Regardless of whether they scammed you—ending a relationship with your financial advisor can be uncomfortable. However, it is a necessity.

To make the process as smooth as possible, follow these steps:

Before Packing Your Bags, Read the Fine Print

Don’t storm out without grabbing your client agreement. This document outlines the terms and procedures of your relationship. Knowing these details upfront will help you avoid nasty surprises from a contract you may be in.

Make a New Course of Action

Do not jump ship without a plan. In other words, you’ll have to plan how you’ll manage your finances in the future.

In most cases, you have three options:

Do-it-yourself. It’s up to you to set up new accounts, select investments, and monitor your portfolio’s performance if you want to take control of your investment portfolio. With this option, you have complete control. However, you must be familiar with the stock market and investment strategies.
Use a robo-advisor. If you’re looking for a low-cost way to manage your investments, consider using a robo-advisor. Wealthfront and Betterment use computer algorithms to automate portfolio management. The only downside is that you won’t receive the personalized advice you would receive from a financial professional.
Find a new advisor. You may want to consider new financial advisors if you lack the energy or time to manage your portfolio independently. Search for and interview potential candidates who align with your investment philosophy and financial goals.

Be Sure to Gather Your Belongings

We’re not talking about packing sentimental items. Instead, this is about getting your financial ducks in a row.

Be sure to request copies of all your account statements, investment reports, and tax documents. By doing so, you will be able to present your new advisor with a full picture of your financial situation, if you choose to go that direction.

One advantage of hiring a new advisor is that they can handle a lot of paperwork. ACATs are one of the most common forms used to change advisers. They come in two forms: full and partial. This form transfers your assets to the new account.

It’s Time for the Talk

If you want to fire your advisor, a phone call or an email will suffice. There is a good chance they already know why, but they may ask why. Even though you may be fuming, keep it professional and avoid personal attacks.

Make a Clean Break

As soon as the conversation ends, it’s time to cut ties officially. Under your client agreement, terminate your relationship and request a transfer of your assets to your new advisor.

Of course, if you’re dealing with a scammy advisor, the above might not be so easy. Just remember that there are laws that protect victims of crime, both at the federal and state levels. Get to know your rights so that you can better protect yourself. Consult your state attorney general for more information on crime victim rights and resources. You can also contact your nearest U.S. attorney’s office.

Additionally, if you need to create a paper trail, call your advisor’s customer service department. If you call directly, the firm’s customer service department will likely record your conversation. As a result, you can report any suspicions of wrongdoing to the firm.

Most importantly, there’s no need to continue communicating with the advisor.

What to Do if a Financial Advisor Scammed You

A scam can be frustrating and frightening. Your identity, your money, or even your sense of security may have been stolen. Fortunately, you are not alone, and steps can be taken to help you recover, according to the Federal Trade Commission.

The Scammer Received a Payment

Get in touch with your bank or credit card company as soon as possible. Tell them you were scammed and ask them to freeze your accounts and reverse fraudulent transactions. If you act quickly, you may be able to get your money back.
File a report with the Federal Trade Commission (FTC). Among the government agencies responsible for investigating scams is the FTC. Reporting the scam will help them catch the scammers and prevent other people from being victims. Online reports can be filed at https://reportfraud.ftc.gov/.

You Gave a Scammer Your Personal Information

Your passwords need to be changed immediately. These include the passwords to your bank accounts, credit cards, email accounts, social media accounts, and anything else you use online.
Place a freeze on your credit report. This will prevent the scammer from opening new accounts in your name. You can freeze your credit with all three major credit bureaus: Equifax, Experian, and TransUnion.
Monitor your credit report for any unauthorized activity. The three major credit bureaus offer free credit reports once a year. You can also sign up for a credit monitoring service, which will keep you informed of any changes to your credit score.

The Scammer Has Access to Your Computer

Run a virus scan. There is a large selection of free antivirus programs online. You should run a scan to see if the scammer has installed malware on your computer.
Be careful about what you click on. Phishing emails and websites often trick people into clicking on malicious links. Never open attachments from emails you don’t recognize, and don’t click on anything you don’t recognize.

Report the Advisor, but Get Your Ducks in a Row First

For more information about your options for recovering your losses, contact the relevant financial regulatory body and seek legal advice. Along with the aforementioned FTC, the scam should also be reported to the appropriate authorities, such as the:

As a result, others will be protected from falling victim to the same scam in the future.

Seek Professional Help

For more information about your rights and options, consult a reputable financial advisor or lawyer. If you can navigate the legal complexities, you may be able to recover your losses.

Beyond Escape: Protecting Yourself From Future Predators

Once you’ve escaped the scam’s clutches, you must fortify your defenses against future attacks. To help you, here are some tips:

Do your research. Make sure you thoroughly research any financial advisor’s credentials, experience, and disciplinary actions before hiring them. You may want to check with regulators like FINRA and the Securities and Exchange Commission.
Ask questions. If you have any questions, don’t be afraid to ask. An advisor who is good at their job will welcome your inquiries and explain everything clearly and clearly. You should never invest in something you do not fully understand.
Beware of unsolicited offers. Don’t fall for cold calls, emails, or seminars promising easy money or quick returns. A scam often begins with these steps.
Diversify your portfolio. Do not rely solely on one investment. Instead, your investments should spread across a variety of asset classes. In addition, you won’t rely on one advisor to manage your wealth.
Educate yourself. Knowledge is power. Learn as much as you can about personal finance and investing. You’re less likely to be scammed the more you understand.

Finally, Keep Your Expectations in Check

Sadly, it is unlikely that you will be able to get all your money back. According to most experts, it’s rare to receive anything more than pennies on the dollar. Although you might get something back if you report it, you’ll definitely get nothing if you don’t.

However, a civil lawsuit, arbitration, or mediation may help you recover some of your lost assets. Just remember that civil lawsuits can cost money and take a long time to resolve. Even after you win, it might still be difficult for you to collect your judgment.

In addition, some types of theft may qualify for a tax deduction. There is an explanation of what to do in Internal Revenue Service Publication 547, Casualties, Disasters, and Thefts. The special tax rules that were enacted after the Madoff scandal now apply to Ponzi scheme victims as well.

By John Rampton

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.