How investors can avoid getting fooled, by FINRA


US securities industry regulator FINRA has just published its version of steps all investors should take to avoid being scammed or fooled.

finra_logoWe believe that FINRA’s Top-5 list of do’s and don’ts are especially relevant to those who trade with online brokers in the Forex and Binary Options sectors. There are many ‘good’ brokers out there which look out for their clients’ needs, take time to get to know their clients, and go out of their way to treat trading clients fairly.

And, unfortunately, there are many which don’t.

Moreover, there are many unregulated Forex and Binary Options brokers out there, with no real oversight when it comes to issues like segregation of client funds, providing fair prices, and smooth and timely withdrawal of client funds.

It is very much buyer beware in all types of investing, but ever more so when dealing with online brokers.

So on the eve of April Fools’ Day, the Financial Industry Regulatory Authority (or FINRA) offers five tips to help investors avoid being tricked out of their money.

According to Gerri Walsh, Senior VP of Investor Education at FINRA,

April 1st is a day to indulge in silly hoaxes and pranks. But there’s nothing funny about a fraudster carrying out a scam – and no one will yell ‘April Fools’ to make the harm melt away. So instead of offering practical jokes, we’re marking the start of Financial Literacy Month with practical tips for becoming a smarter investor.

FINRA’s Top-5 smart investor tips are as follows:

1. Know with whom you’re dealing. When choosing a financial advisor, consider your financial needs and goals, and what types of people or firms you could work with. Ask people you know for names of professionals they’ve used, but don’t stop there – interview a selection of candidates. Ask lots of questions: have they worked with people like you; verify their background; how are they compensated and what fees and expenses they charge. Always work with registered firms and individuals, and check employment and regulatory histories. You can do that quickly, easily and at no charge with BrokerCheck.

2. Understand how to work with your advisor. Be clear and honest about your investment goals and the amount of risk you are comfortable taking. Learn about any investment before you make it. And remember: it’s not enough to read the sales material or offering documents. Make sure you truly understand the investment or strategy by asking lots of questions about potential risks and rewards—and how the investment will help you achieve your goals. Keep a vigilant eye on your account, including fees, account statements and transaction confirmations. Be wary of sales pitches that make exaggerated claims about performance or predictability.

3. Know the different types of investments. Think of the various types of investments as tools that can help you achieve your financial goals. Each has its own set of features, costs, liquidity, risk factors and purpose. And so you should ask questions about all of these elements—and also consider which mix of investments can best help you achieve your goals. To do this, make sure you are at least generally familiar with bank products, bonds, stocks, investment funds and products for specific purposes like saving for college or retirement. Never approve or purchase an investment or sign a contract without fully reading and understanding everything about the product.

4. Look for the warning signs of fraud. Look out for guarantees, unregistered products, overly consistent returns, complex strategies, missing documentation, account discrepancies and push salespeople. The vast majority of advisors are trustworthy, but there are still others who will seek to take advantage of your trust. Practice spotting the persuasion tactics that con artists use, and always exercise healthy skepticism.

5. Don’t hesitate to ask questions. If that’s not already clear from the tips above, remember this: it’s your money, why shouldn’t you feel completely comfortable about trying to protect it? Never worry about appearing uninformed, and remember there are no stupid questions: how does this product work, how can it go wrong, is there a cap on the return, is it a registered product, can I sell it quickly and easily, how is the seller compensated, etc. If your questions are not answered to your satisfaction, then your response is clear: tell them, “no” – you’re no fool in April or any other time of year.

More about FINRA’s smart investor tips can be seen here.

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How investors can avoid getting fooled, by FINRA

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