Awareness helps fraud-proof your client

If you believe the mainstream press, the financial services industry is rife with fraud. While the industry may have a few bad apples, a more plausible explanation for this misconception is that fraudsters see the industry as perfect cover for their underhanded schemes.

Pretending to be a financial advisor, a thief can clean out multiple victims with incredible efficiency and move on before anyone is the wiser.

Luckily there are warning signs that potential victims can watch for, says Greg Pollock, president and CEO of Advocis.

“A Ponzi or pyramid scheme is an investment opportunity built on a fraud that will eventually collapse,” he says. “The first and most important warning sign is when a so-called ‘advisor’ promises you consistent returns on the investment. The reality is that stock markets go up and down. Legitimate investment results will vary.”

He points out that a con artist may apply pressure to persuade a victim to “invest” outside of their risk tolerance. Canadians need to recognize that an ethical advisor works with clients within their comfort level and understands their financial objectives.

Be sure that your clients know there are no “special deals” out there that will make them rich. Legitimate investments are usually open to a wide range of clients.

Real financial professionals must be prepared to explain how financial products work, as this will help distinguish them from fraudsters. Ponzi scheme operators usually claim their strategy is proprietary or too complicated for the client to understand. Your job as an advisor is to make sure your client understands.

Professional designations and licenses are important, but prospective clients need to do their due diligence and make sure the advisor really is licenced and holds the designations they claim. Encourage your clients to look you up.

One final warning sign that Pollock offers is that investment statements should include some basic information such as a street address, and not simply a post office box. A legitimate statement will include a list of the investments and activity over a period of time.

“Each investor is their own best advocate,” Pollock says. “They should take the necessary steps to research, verify and question the advisor and his recommendations. But in the end it comes down to the simple old saying, ‘if it’s too good to be true then it probably is.'”