There are very few guarantees in life, and being able to reduce all risk in an investment is also nearly impossible to achieve. However, there is one investment risk you can completely avoid, and in fact it is not that difficult to achieve this assurance.
Sadly, there still exists financial frauds, although as a percentage of all transactions they are relatively low. Regardless of how low the percentages are, you as an investor do not want to be the victim, and if you are taken, it does not take the sting and harm out of having your hard-earned money stolen from you.
The one type of preventable fraud that exists are those that are perpetrated by someone calling themselves a financial advisor, but in reality, are not legally licensed. These types of frauds still happen, and the recent case of barred former advisor David W. Schamens who stole over $6 in a Ponzi scheme is a perfect example.
Schamens was actually barred from the securities industry 30 years prior, but despite that recently set up a fake seminar program and related investment fund and literally stole investor money. How could his victims avoided this? Quite easily, by going to the two central databases that contain the identities of every lawful financial broker or advisor, https://brokercheck.finra.org/ and https://adviserinfo.sec.gov/
The victims would have quickly discovered that the “advisor” was no longer registered, and upon learning this should have never invested with him.
There are two types of people that are committing fraud by being in the investment business without being licensed. First, someone who used to be licensed, like Schamens, but was barred. The other is someone that was never licensed at all. The latter might try to convince you they do not need to be registered, but that is not possible legally if they want to deal with everyday investors. The former at least will have their bar from the industry a part of the public domain via these two websites.
The very first thing any investor should do prior to seriously considering hiring any advisor is to check the two above regulatory databases. It is the best way to avoid this type of fraud, although there are frauds committed by advisors that are duly licensed and in good standing with regulators. If the “advisor” is not in these databases, simply do not work with the advisor. The same goes for any person who has been barred, or who let their license lapse by leaving the employment of a regulated firm.
There is another benefit to reviewing the regulatory records of your potential or current advisor and that is to see if they have any complaints against them. While over 90% of advisors have no negative history, some who do have negative records have extensive complaints, fines, and penalties. It is these advisors who statistically harm investors and it is best to know if someone you are about to hire has a long history of complaints.
Taking a few minutes to review the background of someone who is offering advice or investments can completely prevent an investor from being a victim of this avoidable crime.