Losing money doesn’t mean an investment adviser is doing something illegal, just as making money doesn’t mean everything is legitimate. Mike Elliott, an attorney with Stark & Knoll, says there are some things you should watch out for.
- Has your financial adviser or broker not requested financial information such as your net worth or your background and experience when it comes to investing? A fundamental rule for both brokers and advisers is that they must know the customer.
- Does your financial adviser or broker make all decisions concerning your investment without your prior approval? This is an example of unauthorized trading by a broker or adviser.
- Has your broker or financial adviser ever agreed to buy back or purchase investments or securities that he or she sold earlier? Brokers and advisers make their money by selling investments, not by repurchasing investments. Such actions could be a sign that the broker has engaged in an illegal transaction and is now trying to cover his or her tracks.
- Do you own a high concentration of a single investment or type of investment? This is a sign that the broker or adviser has failed in his obligation to know the customer. Prudent investment strategy is to spread the risk between different kinds of investments.