How Investors Can Avoid Getting Fooled
WASHINGTON — On the eve of April Fools' Day – which also happens to be the first day of Financial Literacy Month - the Financial Industry Regulatory Authority (FINRA) offers five tips to help investors avoid being tricked out of their money.
"April 1st is a day to indulge in silly hoaxes and pranks. But there's nothing funny about a fraudster carrying out a scam – and no one will yell 'April Fools' to make the harm melt away," said Gerri Walsh, Senior VP of Investor Education at FINRA. "So instead of offering practical jokes, we're marking the start of Financial Literacy Month with practical tips for becoming a smarter investor."
- Know with whom you're dealing. When choosing a financial advisor, consider your financial needs and goals, and what types of people or firms you could work with. Ask people you know for names of professionals they've used, but don't stop there – interview a selection of candidates. Ask lots of questions: have they worked with people like you; verify their background; how are they compensated and what fees and expenses they charge. Always work with registered firms and individuals, and check employment and regulatory histories. You can do that quickly, easily and at no charge with BrokerCheck®.
- Understand how to work with your advisor. Be clear and honest about your investment goals and the amount of risk you are comfortable taking. Learn about any investment before you make it. And remember: it's not enough to read the sales material or offering documents. Make sure you truly understand the investment or strategy by asking lots of questions about potential risks and rewards—and how the investment will help you achieve your goals. Keep a vigilant eye on your account, including fees, account statements and transaction confirmations. Be wary of sales pitches that make exaggerated claims about performance or predictability.
- Know the different types of investments. Think of the various types of investments as tools that can help you achieve your financial goals. Each has its own set of features, costs, liquidity, risk factors and purpose. And so you should ask questions about all of these elements—and also consider which mix of investments can best help you achieve your goals. To do this, make sure you are at least generally familiar with bank products, bonds, stocks, investment funds and products for specific purposes like saving for college or retirement. Never approve or purchase an investment or sign a contract without fully reading and understanding everything about the product.
- Look for the warning signs of fraud. Look out for guarantees, unregistered products, overly consistent returns, complex strategies, missing documentation, account discrepancies and push salespeople. The vast majority of advisors are trustworthy, but there are still others who will seek to take advantage of your trust. Practice spotting the persuasion tactics that con artists use, and always exercise healthy skepticism.
- Don't hesitate to ask questions. If that's not already clear from the tips above, remember this: it's your money, why shouldn't you feel completely comfortable about trying to protect it? Never worry about appearing uninformed, and remember there are no stupid questions: how does this product work, how can it go wrong, is there a cap on the return, is it a registered product, can I sell it quickly and easily, how is the seller compensated, etc. If your questions are not answered to your satisfaction, then your response is clear: tell them, "no" – you're no fool in April or any other time of year.
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Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database. Investors can also call FINRA's Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.