Adviser is a crook
When it comes to investing, there are precious few certainties, other than the fact that nobody works for your financial best interest as completely as you do.

That fact became obvious to the clients of the Warrenville, Ill., company Capital Management Associates recently when the SEC brought a suit against the father-and-son team that run it for "cherry picking" trades.

We'll get back to that story in a moment. But it's important for everyone to know that even the ethical players in the financial industry earn their living based on the fees they get directly from you or via the providers of products they recommend to help you achieve your goals.

In addition, because financial management is somewhat complicated and the future is never guaranteed, it's an industry rife with opportunities for fraud and theft. That's especially a risk when people turn over complete control of their hard-earned cash to an "expert" who promises to manage it for them.

If you suspect that your financial adviser may be scamming you, here are five signs that can help you uncover it.

Sign No. 1: An Adviser Won't Provide Real-Time Trading Information.

In the case against Capital Management Associates, the SEC alleges that the duo ran trades without specifying whether they were for clients' accounts or for the owners' accounts. Then, once the profitability or loss of the trade was assured, the company would backdate that information, assigning the profitable trades for themselves and the losers to clients.

Losing money in an investment is not a crime, but cherry-picking among winning and losing trades after the fact is.

How could clients of Capital Management Associates have known that they were getting saddled with the bad trades? The short answer is: by staying in the loop.

Those who trust their adviser to trade on their behalf should, at the very least, insist on receiving a running total of all trades when they are made. If your financial adviser can't or won't do that for you, then chances are pretty good that you're being scammed.

Sign No. 2: An Adviser's Returns Are Too Good to Be True.

Bernie Madoff swindled investors out of billions of dollars in what has been called the largest Ponzi scheme ever uncovered. While Madoff, a former chairman of the Nasdaq stock exchange and securities representative on SEC industry panels, knew enough to hide from the regulators for decades, his returns were too consistent to be real.

Any time an investment advisor is guaranteeing returns or assuring consistency, year in and year out, there's a pretty good chance it's a scam. And while there are a few legitimate annuities with investment accounts structured in a way to "guarantee" you won't lose money, they're generally just high-cost insurance plans where you're paying dearly for those guarantees through the structure of the deal.

Sign No. 3: You're Getting Hot Tips That You're Told You Need to Act on Now.

Any legitimate investment worth owning will still be available tomorrow, after you've had the time to think about it (and research it independently). Any pushy advisor telling you things like, "You've got to act today to get in on the ground floor" or "You don't have time to read the paperwork"
is asking you to act without reviewing something, which is a common hallmark of a scam.

While there are real deadlines for things like IRA contributions, the money in those accounts can easily sit as cash until you've had time to review the details of the investment recommendation. And be aware that prices in the stock and bond markets do change regularly -- often several times throughout a trading day. If your adviser brings you an investment to consider and you do take the time to review it before buying, don't be surprised if the price winds up being a bit different than initially discussed.

Still, it's better to wait and lose a little bit than to lose everything to an outright scam.

Sign No. 4: You're Promised Investments That Will Be "No Cost to You."

If you're working with a financial adviser, that advisor is getting paid by you, either directly by checks you write or indirectly via commissions, spreads, or fees generated by the investments you make. Any adviser claiming otherwise is hiding something -- likely an outlandishly high fee for placing an investment or insurance policy, which can often run north of 7 percent of the invested amount.

A competent advisor deserves to be paid for his or her time and expertise. But one that won't tell you how much you're paying for the service or how you're paying for it is an adviser to walk away from.

Sign No. 5: Your Account Is Being Churned and Burned.

And speaking of fees, be wary of an adviser who regularly churns your account through multiple trades of similar types of annuities, mutual funds, or other investments. If your adviser is getting paid through a hidden commission from making the transaction, that activity is very likely lucrative for the adviser ... but not so much for you.

Not all investments work out, of course, but a common definition of insanity is doing the same thing over and over again while expecting different results.

If your advisor is trying to convince you that the investment you are in is so much worse than a fairly similar one you should be in, that's a sign that neither investment is likely right for you.

Look Out For Your Own Best Interests

To check out a broker or adviser, you can use the free Broker Check from FINRA, the Financial Industry Regulatory Authority. And to learn more about the signs of investment fraud, check out our free course on How to Avoid Financial Scams in the DailyFinance Learning Center.

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I'd have to disagree with the author. He's looking to scare everyone as that's what the media does to us. Otherwise, we wouldn't be attracted to their articles and ads. Anyways...some investments you do need to act "now" on because insurance companies can lower the rates they guarantee inside annuities. They can't afford to offer everyone 6% guaranteed for life everyday, so they do monitor how often they allow those products to be sold. Some of you will luck out and get one in time, or you will find one that is 4%. Depends on the market and who you work with. :) Also, some products that are like ones you have are improved now. Your choice if you want to improve it or not. Nothing is free. Duh.

May 23 2013 at 1:58 AM Report abuse rate up rate down Reply

Take a college course or two and invest yourself. You will be thrilled at the results you accomplish investing this way. People who make Money for a living, make it, nomatter if you win loose or draw. But it's your Money, they are gambling with and in many cases, you are the only one in the loss column when it is all over.

May 22 2013 at 10:59 PM Report abuse rate up rate down Reply

I would say that if your broker tries to see you "load mutual funds" he is scamming you. Also, never buy an annuity or an insurance policy from a stockbroker. You will get "double-dipped" on commissions.

May 22 2013 at 6:04 PM Report abuse rate up rate down Reply

People need to keep in mind that investment advisors are often simply used-car salesmen with a fancy diploma.

May 22 2013 at 5:20 PM Report abuse +4 rate up rate down Reply
1 reply to elendil3136's comment

And sometimes those "diplomas" are not fancy at all. Generally, trade school diplomas are not memorable.

May 22 2013 at 7:24 PM Report abuse rate up rate down Reply

the real big scammer is the Government

May 22 2013 at 4:35 PM Report abuse rate up rate down Reply

I remember an article in an investment magazine a few years ago where a man who claimed to be an investment counselor warned people to watch out for his kind.

"I've got a mortgage, a wife, a mistress, and two hookers to support", he said.

May 22 2013 at 2:31 PM Report abuse rate up rate down Reply

wonder what planet Hank lives on

May 22 2013 at 12:12 PM Report abuse +1 rate up rate down Reply
1 reply to tiger38paws's comment


May 22 2013 at 6:43 PM Report abuse rate up rate down Reply

This problem is also present in the very large investment firms. In fact they have a problem identifing who they are because sometimes they are a Bank, sometimes a Broker and sometimes an Investment Manager. When the field VP tells you it is time to buy a stock check and see if the Company he represents is selling the very same stock. They have investment arms that compete against you the private investor. You could be buying stock that the Company who represents you is selling because it is a bad investment.
The stock that a field VP represent to you as a good investment is a stock that his company is pushing for him to sell. He is a salesman who is chartered to represent you but he is representing his company. He doesn't do any indivual analysis of the stock all that data comes from his home office and represents what is best for that company.
Beware of Financial advisors. I fired all mine and manage my own accounts gains 250 % in last 5 years.

May 22 2013 at 10:44 AM Report abuse rate up rate down Reply
1 reply to clafoon's comment

You have 250% gains because the market "crashed" in March 2009 and basically "anything" "anyone" bought then is up that much today! If you invested 10 years ago, different story. It doesn't matter who you are or what you bought, over the last 5 years the market has done nothing but go up from the bottom.

May 23 2013 at 2:05 AM Report abuse rate up rate down Reply

The first sign is when he pulls up to your home driving a $2 Million Bugatti....

May 22 2013 at 7:21 AM Report abuse +1 rate up rate down Reply
Hank Kerchef

Big deal,,, Bush jr,,,Bush sr,,,,,and Reagan were far worse than Obama could ever begin to be.

May 22 2013 at 5:28 AM Report abuse -5 rate up rate down Reply