3 Types of Fraud in Financial Planning

Millions of people have been lured into investing their hard-earned money based upon fake and misleading information. Unfortunately, the results are often dismal and many investors have lost their life savings. Sadly, the financial planning industry is rife with advisers and brokers who are willing to deceive their customers for personal gain. That said, the brokerage industry is regulated by federal and state law. Acts of professional misconduct or outright fraud are illegal. Below, we’ll explain the 3 most common types of financial planning fraud to watch for.
Tip 1 – Churn And Burn
Some financial advisors are compensated through the commissions earned on the purchase or sale of securities. If tempted, some might engage in excessive buying and selling for the purpose of generating commissions. Often, this type of activity is difficult to identify, especially if it is not overly egregious. However, if an advisor is “churning” a particularly small account, the activity may be obvious.
Tip 2 – Breach Of Fiduciary Responsibility
A financial advisor has a legal fiduciary responsibility to his clients. That is, the advisor must act in accordance with his client’s best interests, thereby eliminating any potential conflict of interest. However, financial advisors can often be tempted to place their client’s money in investments that are poorly suited for them. For example, placing the majority of a retired person’s account into a volatile stock can be disastrous. And it can be considered a breach of duty on the part of the financial advisor.
Tip 3 – Misrepresenting ethics and stakeholders Facts
This likely happens more often than the securities industry is willing to admit. Advisors may misrepresent the facts about a company’s earning or prospects in order to convince a client to buy the stock. Or, if a client has a sizable investment in a security, an advisor may purposefully neglect to inform the client of an impending problem within the company. This happens often with stocks that are promoted by the advisor’s investment company.
Treading Carefully
Misconduct among financial advisors is nothing new. When it is identified, the victim may have legal recourse. However, one of the challenges is proving that professional misconduct exists. A second challenge, just as formidable, is discerning what legal problem definition type of conduct is and isn’t illegal. The Securities and Exchange Commission allows brokers who sell investment vehicles to avoid having to register as licensed investment advisors. This confuses the issue of legality and fiduciary responsibility.
In the end, if you believe you may be the victim of professional misconduct, speak with a qualified attorney who specializes in securities fraud. They can provide guidance and insight regarding the likelihood of your recouping any losses that may have resulted.

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