Some Red Flags of Financial Fraud


While fraudsters are with us always, they are especially active in times like these when extremely low interest rates and stock market volatility have made conventional stock and bond investments unattractive and have given rise to a multitude of alternative investments, some of which may be fraudulent. To help combat this, the Certified Financial Planner Board of Standards, Inc. has put out a booklet called “Consumer Guide to Financial Self-Defense,” which features 10 “red flags” of fraud. It is the subject of a recent article in entitled “How to Fend Off Financial Fraudsters.”

At least 60 percent of certified financial planners who responded to the Board’s survey said they know of someone who has been a victim of fraud perpetrated by another financial adviser, and that most of them are seniors ages 61 to 75. Thus, the odds of encountering one of these fraudsters may be greater than you think.

Some of the red flags include:

1. Asking you sign blank paperwork to be filled out later by the adviser or his office. This provides an opportunity to misrepresent the investor’s investment objectives, risk tolerance, and investment experience, which, in turn, may thwart required supervisory oversight. As the article says, investors should always ask for copies of all paperwork, including, but not limited to, copies of all documents signed by the investor, and review them for “mistakes.” Correct any errors in writing to the adviser.

2. Paying for an investment by making a check payable to the adviser or leaving the payee line blank to be filled in later by the adviser. As noted above, this just opens the door for shenanigans. There is no need for it. Don’t do it.

3. Time pressure, no matter what the excuse is, is a red flag. Investing requires time to weight the risks and benefits. Your adviser should always disclose the risks as well as the potential benefits. There are always risks to be weighed, and that takes time. Don’t be rushed.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.