Defending Your Dollars: 7 Financial Pros Advise How to Avoid Investment Scams

With new artificial intelligence tools at their disposal, fraudsters have law enforcement officials scrambling to keep up. Across the country, thousands of Americans have lost billions of dollars to investment scams in the last year. But by remaining vigilant, financial experts say you can avoid becoming the next victim.

Alarming statistics from a recent study by the Carlson Law Firm reveal that Americans lost $3.82 billion to investment fraud in the last year. These numbers highlight the urgent need for individuals to be cautious and informed regarding safeguarding their financial futures.

The report also shows that investment scams affect Americans no matter where they live. While California, Florida, and Texas ranked highest in the total money lost to fraud, residents living in Maryland, New York, and Nevada were most likely to be victims of financial scams.

To avoid a similar fate, this article offers tips from seven Wealthtender financial experts to protect yourself from investment fraud and safeguard your financial future.

Verify the Legitimacy of Companies and Individuals

One of the fundamental steps to avoid investment fraud is to ensure you are working with legitimate companies and individuals. 

Financial planner David Berns from Trueadvice Wealth Management advises, “Everyday people can protect themselves from investment scams by ensuring you are always working with legit companies and verifying their credentials online.” Avoid clicking on ads or suspicious emails, and when in doubt, reach out to your financial professional to confirm the authenticity of the communication. Additionally, researching the company or individual making the offer and checking their credentials can help you make informed decisions.

Likewise, Myra Alport, AFC and founder of Myra Alport Money Coach, cautions, “Never ever click on links or attachments from an unknown party. These emails may be poorly written with misspelled words, poor grammar, or punctuation.” 

Jonathan Bird, CFP at Farnam Financial, also suggests, “Avoid taking advice from someone who’s not a licensed investment advisor.” Always look for registered investment advisors listed on the SEC website and check for any disclosures associated with them. This due diligence will provide insights into their professional background and help you make better-informed decisions. Narrowing your search to financial advisors who have earned their Certified Financial Planner designation also reduces your chances of hiring an unscrupulous individual.

Use Reputable Custodians

Bird also emphasizes the importance of using a custodian for your money. Reputable custodians such as Fidelity, Vanguard, and Schwab provide secure storage of customer assets, minimizing the risk of theft or loss. 

Utilizing a custodian as an intermediary can protect your investments and reduce the likelihood of falling victim to fraud. Bernie Madoff’s case is a stark reminder of the risks associated with giving money directly to an individual rather than using a reputable custodian.

Beware of High Returns with Little Risk

Fraudsters often entice unsuspecting individuals with promises of high returns and minimal risk. However, as Jonathan Bird advises, “Avoid anyone promising high returns with little risk. This is a huge red flag.” Remember that legitimate investment opportunities always carry a certain level of risk. If an investment seems too good to be true, it likely is illegitimate. Consider reporting it to the Securities and Exchange Commission (SEC) and exercise caution before proceeding.

Educate Yourself

Understanding the investment you are considering is crucial in avoiding fraud. As Joe Petry, Ph.D., CFP and founder of Mayfair Financial, suggests, “If you don’t understand the investment, don’t invest.” Take the time to research and learn about the investment product or strategy before committing your hard-earned money. Such investment products can even include many mainstream investments like cryptocurrencies. Many people dive headfirst into cryptocurrencies without fully understanding the asset class and get burned.

Cobin Soelberg, M.D., J.D., founder of Greeley Wealth Management, suggests creating an “Investment Policy Statement” that can help you get clear on exactly what criteria you are looking for in investments and what to do in certain situations (e.g., job loss, recession, housing market crash, etc.). Soelberg highlights the importance of aligning investments with your Investment Policy Statement (IPS) to mitigate the risk of falling for fraudulent schemes.

Avoid Pressure Tactics and Scarcity Offers

Scammers often employ pressure tactics, creating a sense of urgency to entice individuals into making quick investment decisions. Justin M. Follmer, CFP and founder of Coastal Wealth Advisors, advises, “Don’t let yourself be pressured into making a quick decision.” Take the time to carefully evaluate the investment opportunity, seek advice from trusted individuals, and conduct thorough due diligence.

Additionally, scammers often use the principle of scarcity to make their offers seem more attractive. They might say that the offer won’t last or that they have a limited amount of the product to offer, but staying calm and not succumbing to rushed decisions is crucial to avoid falling victim to investment fraud.

Seek Advice from Trusted Professionals

Financial advisors play a vital role in helping individuals make sound investment decisions. Consulting with a nearby financial advisor can provide valuable insights and guidance. However, just as with evaluating investment choices, it is essential to be equally cautious considering financial advisors. 

As Nate Byers, CPA/PFS, of Calculated Wealth, emphasizes, “Never trust anyone who promises a high return in a short period of time.” Engage in open and honest discussions with anyone you’re thinking about hiring, know the right questions to ask a financial advisor, and seek clarification on any concerns you may have. Their expertise and knowledge can help you navigate investment opportunities and avoid scams.

Avoid Becoming a Statistic

In an era where investment fraud continues to pose a significant threat to individuals seeking financial growth and security, protecting yourself from fraudulent schemes is paramount. By verifying the legitimacy of companies and individuals, utilizing reputable custodians, being cautious of high returns with little risk, educating yourself about investments, avoiding pressure tactics, and seeking advice from trusted professionals, you can safeguard your financial future.

Remember, building wealth takes patience and diligence, and avoiding investment fraud is crucial to securing your financial well-being. Stay vigilant, stay informed, and protect yourself from investment fraud.

Find a Financial Advisor

Do you have questions about your financial future? Find a financial advisor who can help you enjoy life with less money stress by visiting Wealthtender’s free advisor directory.

Whether you’re looking for a specialist advisor or prefer to find a financial advisor near you, you deserve to work with a professional who understands your unique circumstances.

Have a question to ask a financial advisor? Submit your question and it may be answered by a Wealthtender community financial advisor in an upcoming article.

This article originally appeared on Wealthtender. To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers.

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Disclaimer: This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

About the Author

Jeff Fang

Jeff is a Harvard 2025 student who is passionate about learning, living, and sharing all things personal finance-related. He has experience working in the financial industry and enjoys the pursuit of financial freedom. Outside of blogging, he loves to cook, read, and golf in his spare time.