Five Steps to Prevent Investment Fraud

Five Steps to Prevent Investment Fraud

Earlier this August, an accountant here in Overland Park, KS, was sentenced to nine years in prison for embezzling more than $4 million from clients. His case made local news earlier this year when he admitted to stealing over the course of 10 years, using the money to buy expensive items like vehicles and jewelry. Another Overland Park-based brokerage firm was fined this month by regulators for getting its investors involved in an investment fund that later turned out to be nothing but a scam.

Though fraud like this is fairly rare, it is still unsettling and shocking. Investors may find little comfort in the fact that they were caught — that all embezzlers are eventually caught — because these thefts were so personal. Nest eggs and retirement funds were siphoned by someone trusted and close.

Bernie Madoff became a household name during the Great Recession for a ponzi scheme that involved billions of investors’ dollars. Many of these were supposedly sophisticated investors, including large charitable endowments. If these seasoned people were duped, how can anyone know if they are being subjected to similar scams?

Fortunately, there are things the average person can do to limit the likelihood of falling prey to financial abuse. Here are five ways you can prevent investment fraud from happening with your money:

1.) Work with a qualified advisor.

Most people don’t realize that anyone can call themselves a “financial advisor.” This is why the first preventative step you can take to avoid scams is to make sure the financial professional you work with is qualified and governed by a board of ethics. Though the financial services industry has a plethora of credentials, the top organizations are:

Credentials themselves don’t guarantee fraud won’t happen, but these top-tier designations require years of study, challenging examinations, and industry experience. Each has its own board of ethics that reviews complaints and strips professionals of the credential if they do not meet its stringent standards.

2.) Do your own research.

Your best weapon against fraud is education. The Security Exchange Commission (SEC) lists this as one of their number one tips against theft: “Fraudsters rely on the fact that many people simply don’t bother to investigate before they invest.” You can research financial advisors via the regulatory agency FINRA’s BrokerCheck tool. This site allows you to research individuals or firms for any complaints or reports against them. Don’t be afraid to ask questions and confirm the answers. If you have a nagging question that can’t be answered, don’t proceed until you are confident.

3.) Know the red flags of fraud.

Though investment scams can take many different forms, there are usually warning signs visible to the watchful eye. The most common include:

  • Returns that are too good to be true
  • Guarantees that claim no risk of investing
  • Unregistered products or investments that don’t have detailed documentation
  • Discrepancies in accounts, such as unauthorized transactions or numbers that don’t add up
  • Secrecy and lack of transparency
  • Pushy sales tactics, such as pressure to “buy now” before the opportunity closes

FINRA has a “Scam Meter” on its site which includes a little quiz to help identify the likelihood of an investment being a scam. FINRA even features an online game where you can take your turn trying to dupe people out of their money using false credentials and social pressure.

4.) Use outside custodians.

One way embezzlers funnel money away from investors is by taking custody of accounts themselves and providing statements and returns that are fake. By insisting on outside custodians such as Fidelity, Schwab, or TD Ameritrade, investors can keep better tabs on all transactions and real returns. Review quarterly statements to confirm that nothing is going on within accounts without your awareness.

5.) Check your credit report regularly for any unauthorized accounts.

Because advisors often have access to deeply personal data, there have been cases in which credit cards or other debt instruments were opened without a client’s awareness. By reviewing your credit report, you can see all of the debts associated with your social security number. This can be done easily for free at

Keep in mind that a credit report is not the same as your “credit score.” Your credit score is just a number that helps summarize the strength of your credit history. A credit report will not include your score, but it lists your accounts and payment history for those accounts. Anything suspicious, such as unknown credit cards or rewards programs should be researched further.

Following these five best practices won’t guarantee that you’ll never become victim of a financial crime, but they will significantly limit the likelihood. Though the vast majority of financial professionals are trustworthy and faithful to their clients, the risk is too great to not take appropriate precautions.

At Sound Stewardship, we’re committed to making sure clients’ investments are secure and transparent. For example, here are just some of the steps we take:

  • All advisors of our firm must be both CFP® and NAPFA certified.
  • In addition, all must be a Certified Kingdom Advisor®, a designation that is less common, but calls us to a higher ethical standard, including references from several clients.
  • All investment accounts managed by the firm are done at the outside custodian of the client’s choice.
  • Clients’ personal information is stored in a secure, encrypted server that is monitored by third-party IT specialists.
  • Credit reports are regularly encouraged and run with clients, as desired.
  • All transactions are monitored by a client’s service team, so no one employee can operate unilaterally.

We believe our independent, unbiased approach allows for an authentic, financial relationship. We’re committed to serving you. Contact us today to get started.

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