Five ways to avoid investment fraud

One of the concerns for new investors is how they can avoid investor fraud. After working so hard to earn their money, the last thing you want to do is lose it to some scammer as you’re learning the ropes of how to make your money work for you.

Here are five tips for how you can avoid investment fraud.

1. Only deal with registered advisors: You want to be sure that you’re working with someone legitimate who can really help you grow your investment – and not take your money. You can check advisors’ registration through the Canadian Securities Administrators’ (CSA) National Registration Search or even a provincial securities regulator, such as the Ontario Securities Commission. You can also find out if the ones you are interested in have ever been in any trouble with a securities regulator by using the CSA’s Disciplined Persons List.
2. Get a second opinion: If you don’t know the person you’ve chosen, or haven’t received a recommendation from friends or family who do know that person, then you may want to meet with another source to get a second opinion to see if everything you’ve heard sounds right. This is particularly important if you haven’t solicited the person who gave you the first opinion, which can happen if you get an offer on the phone or online, or even from an acquaintance. You can find another registered, qualified advisor on the same list as mentioned above, but you could also talk to a lawyer or accountant just to protect yourself. If something feels off, take the time to do your due diligence, so you’re not sorry later.
3. Watch for fraud warning signs: Even if you’re new to investing, there can be some early warning signs that you may be dealing with a scammer. Be careful if that person promises:

• easy, guaranteed money with high returns and low risk
• hot tips where they have ‘inside information’ that makes the investment a sure bet
• overseas investment with no taxes
• that it’s a time-limited offer, so you must buy now or you’ll miss out because the opportunity will quickly disappear
• everyone is buying it, so you should, too
• you can trust them when you don’t know them
• you won’t be sorry if you send the money right now

Remember, if it sounds too good to be true, it probably is` – even if you the person is polished enough to appear to be genuine.

4. Ask questions: This applies to both the fraudster and investment. Do some research about what you might want to know and make a list of questions that apply to who you want to work with, how you want to invest, and what returns or expectations you have of an investment, then start asking.

Fraudsters count on you not doing your homework, so may disappear when you start asking. But, even when you find the correct, and legitimate, person to work with, make sure you ask questions about the investment, so you know what you’re buying and how it works. There are so many kinds of investments on the market right now that, even if you’re dealing with a legitimate advisor or product salesperson, he or she should be glad to answer your questions and help you understand what you’re buying. If they aren’t, then that could be a warning sign, too – even if it’s someone legitimate who won’t take the time to tell you what you’d like to know because any good advisor should be willing to help you improve your financial literacy, so you become an even more knowledgeable investor.

5. Take the time you need: This applies to many aspects of deciding whether you have the right advisor – and investment.

• Don’t let anyone pressure you into time-limited offers. If the investment is legitimate, you shouldn’t have to invest on the spot.
• Before you put your money down to make any investment, take the time you need to understand how the advisor and investment work and how you pay fees for it. Ensure that it fits with your financial goals and other investments. This is what your financial advisor can help you with – or will even do for you – so take your time to check it out.