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.
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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.
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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.
Frequently Asked Questions
How can I check if a financial advisor or investment firm is legitimate?
Look up the person and firm on FINRA BrokerCheck and the SEC’s Investment Adviser Public Disclosure site, which show registrations, employment history and any disciplinary actions. If someone claims to be a CERTIFIED FINANCIAL PLANNER professional, confirm it with the CFP Board’s verification tool. You can also contact your state securities regulator. Anyone who is not registered, or who discourages you from checking, is a serious red flag.
What are the most common warning signs of an investment scam?
Classic warning signs include promises of high or guaranteed returns with little or no risk, pressure to act immediately, and offers that are described as secret, exclusive or limited. Other red flags are unsolicited contact through social media, text or email, requests to pay in cryptocurrency, gift cards or wire transfers, and any arrangement where your money is held by the individual rather than an independent custodian. If you cannot clearly explain how an investment makes money, treat that as a reason to walk away.
Where do I report investment fraud?
You can submit a tip to the SEC, file a complaint with FINRA if a brokerage firm or broker is involved, and report scams to the Federal Trade Commission at ReportFraud.ftc.gov. Online and cryptocurrency scams can also be reported to the FBI’s Internet Crime Complaint Center (IC3), and your state securities regulator handles local cases. Report quickly and keep records such as messages, account statements and payment receipts.
How much money do Americans lose to investment fraud?
According to the FBI Internet Crime Complaint Center’s 2025 report, investment fraud was the costliest category of reported internet crime, with about $8.6 billion in losses. Cryptocurrency investment schemes accounted for roughly $7.2 billion of that total. Because many victims never report, actual losses are likely higher.
About the author
Contributing Writer, Wealthtender
Jeff Fang is an investment banking analyst in Toronto. He wrote personal finance articles for Wealthtender while studying at Harvard University, where he earned a B.A. in Economics and Slavic Languages and Literatures and captained the men’s varsity golf team.
He also founded and ran The Financial Pupil, a personal finance blog. Outside of work, Jeff enjoys cooking, reading and golf.