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Attention Investors: Avoid These Red Flags

Simms Law, P.C. June 14, 2022

Most financial professionals are honest, hardworking people who do a great job for their clients. Unfortunately, however, every profession has its share of crooks, and the financial industry is no different. Therefore, investors should always stay vigilant when dealing with brokers and financial advisors, no matter how trustworthy they may seem. Below are some red flags that investors should look out for when dealing with financial professionals.

  1. Loan requests – Investment professionals should never ask to borrow money from their clients. In fact, the Financial Industry Regulatory Authority (FINRA) prohibits such behavior. Therefore, even if the two of you have a close relationship, you should be extremely wary of lending your financial advisor money.

  2. Promissory note sales – Promissory notes can be legitimate investments. However, they are also often fraudulent, and investors should proceed with caution when considering this investment option. Two major problems with promissory notes involve unregistered securities and unregistered sellers. When a security is unregistered, it lacks Securities and Exchange Commission oversight, potentially leaving investors without important financial information they’d otherwise be entitled to. Unregistered sellers, on the other hand, practice their profession without FINRA oversight, which also presents hazards for investors.

  3. Private communication – If a financial professional begins communicating with you via his or her private email address, you should exercise caution. FINRA requires that registered firms maintain business-related documents and records, including emails. Therefore, if a financial professional wants to communicate with you using unofficial channels, this may be a sign that he or she wants to avoid creating official records, which in turn can indicate fraudulent activity.

  4. Requests for payment to an entity or person other than the firm – Generally speaking, an investor should only make payments directly to the firm that he or she is dealing with. In other words, an investor should rarely, if ever, write a check to a financial representative or other third party. This is often a sign of fraud or a sign that the representative’s firm doesn’t approve the investment.

Fort Lauderdale Investor Representation Attorney

At Simms Law, P.A., one of our primary focuses is the representation of investors—including those investors who believe they’ve been the victims of financial fraud. Unfortunately, securities fraud has been a part of the United States financial system since the advent of the stock market. For the retail investor, securities fraud typically occurs when a broker or financial advisor misrepresents the risks and key characteristics of an investment, causing the investor to purchase an unsuitable security. At Simms Law, we always take our clients’ concerns seriously and are aware of what is at stake when an investor suffers losses due to financial fraud. If you suspect that any suspicious activity has occurred in any of your investment accounts, or if you believe that you have been misled about the nature and risks of any of your investments, please contact us today for a free consultation.