What’s a Financial Advisor to Do?

What’s a Financial Advisor to DoFinancial fraud solicitations are commonplace. A survey by the FINRA Investor Education Foundation found that eight in 10 respondents were solicited to participate in a potentially fraudulent offer and 11 percent of all respondents lost a significant amount of money after engaging with an offer.

Solicitations were driven in the form of telemarketing, emails asking for help,  calls requesting wire transfers, and faxes claiming to be banks from overseas. Unfortunately, many financial advisors cannot identify the classic red flags of fraud, placing them at risk to lose money.


Wealthy and older Americans are particularly vulnerable. Americans age 65 and older are more likely to be targeted by fraudsters and lose money once targeted. Upon being solicited for fraud, older respondents were 34 percent more likely to lose money than respondents in their forties.


Even though fraud solicitations are widespread, people are vulnerable because they do not know what to look for when engaging in a financial activity. For example, many lack an understanding of reasonable returns on investments, leaving them vulnerable to fraudulent pitches that promise unrealistic or guaranteed returns. In fact, the study shows more than four in 10 respondents found an annual return of 110 percent appealing and 43 percent found “fully guaranteed” investments to be appealing — even though annual returns over 100 percent are highly improbable, virtually no investment is riskless and inflated returns and guarantees are common pitches from fraudsters.


According to Kiplinger’s The Crime of the 21st Century report, on average the chances of making a financial blunder or being  swindled increase after age 53. However, this does not apply to everyone.

Cyber fraud, telephone fraud, a Nigerian letter, mortgage help and free lunch seminars are among the most successful forms of scam. Moreover, trending now are fake IRS e-mail notices.  Unfortunately, greedy financial advisors also contribute to the cause. Remember Bernie Madoff and his estimated $50 billion Ponzi scheme?

Technology has changed the way we live. As technology advances, so do the tools used by criminals to steal from clients. Wire fraud, identity theft and email scams — especially “phishing”— are increasingly difficult to spot.

What is an advisor to do when his client gets taken advantage of?

A client’s best defense is to be educated by their financial advisor, so they are not taken advantage of by these schemes. Financial advisors are in an ideal position to teach their clients to spot the red flags. Advisors may want to consider developing an ongoing communications program to help clients better understand the ways they can protect themselves from threats – cyber, phone  and otherwise. When advisors hear of a new scheme, they should email or call clients right away.

Should a client fall prey to a scam, advisors must make tough decisions and act fast, experts say. “Above all, advisors should help clients try to recoup their losses, but they must also decide how far to go in the name of justice, since wading into legal entanglements can eat up time and jeopardize client confidentiality. Perhaps most important, depending on why clients fell for a scam, advisors must decide whether to continue serving the gullible,” explains Financial Advisor magazine.

As a responsible advisor, there are signs you should look out for: unusual activity in a client’s banking  (withdrawals, deposits, or transfers between accounts) and documents that give control of finances to a third party. Even if that person is a family member or lifelong friend, he or she may not necessarily be trustworthy.  Powers of attorney can be rife for abuse because of the broad authority they grant, according to the Federal Deposit Insurance Corporation.

Financial advisors cannot single-handedly eliminate fraud,  but by persistently educating clients, they can help raise awareness on fraud among clients — and saving even one client from becoming a victim is a huge deal.

For more information on Summit Brokerage Services, visit www.joinsummit.com or contact us at (800) 354-5528.

Summit Brokerage Services is a member of Cetera Financial Group, RCS Capital Corporation’s (NYSE: RCAP) retail investment advice platform.

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