As the old adage goes, ‘if it seems too good to be true,’ it probably is. This holds especially true when dealing with financial advisers who promise unusually high returns on investments. Weeding out untrustworthy financial advisers requires a thorough investigation, but with the right tools, investors can make informed decisions and protect their hard-earned money.
In recent years, the financial services industry has faced numerous scandals and high-profile cases of adviser misconduct. It’s essential to be mindful of these issues and take steps to safeguard your investments. While no method is foolproof, a free online tool can provide valuable insights to help you identify potential red flags.
What is the tool, and how can it help you?
The Financial Industry Regulatory Authority (FINRA) offers a BrokerCheck tool that allows you to research registered brokers and investment advisers. This free online resource provides a comprehensive overview of an adviser’s background, including their:
1. Registration status: Ensure the adviser is registered with FINRA and the relevant state securities authority.
2. Disciplinary actions: Look for any disciplinary actions, fines, or settlements related to the adviser’s conduct.
3. Complaints: Review the number of customer complaints filed against the adviser and their resolution.
4. Business activities: Understand the types of products and services the adviser offers, as well as their affiliations with other firms.
How to use BrokerCheck effectively
While BrokerCheck is an invaluable resource, it’s essential to use it correctly to get the most out of the tool. Here are some tips to keep in mind:
- Start with the adviser’s name: Enter the adviser’s name or firm name in the search bar to get started.
- Review the report thoroughly: Don’t rush through the report. Take your time to review each section and understand the information provided.
- Look for consistency: Check if the adviser’s registration status, disciplinary actions, and complaint history are consistent across different sources.
Red flags to watch out for
While no single red flag is a guarantee of misconduct, some indicators are more telling than others. Be cautious of:
- Unregistered advisers: Ensure the adviser is registered with FINRA and the relevant state securities authority.
- Multiple disciplinary actions: If an adviser has a history of disciplinary actions, it may be a sign of a pattern of behavior.
- High complaint rates: If an adviser has an unusually high number of customer complaints, it’s worth exploring the reasons behind these complaints.
What to Watch Next
As the financial services industry continues to evolve, it’s essential to stay informed about the latest trends and developments. Some key areas to watch include:
- Regulatory changes: Keep an eye on changes to regulatory requirements and how they may impact the financial services industry.
- New technologies: The rise of fintech and digital platforms is transforming the way financial services are delivered. Stay up-to-date on the latest innovations and their potential implications.
Conclusion
Researching a financial adviser before investing requires time and effort, but it’s a critical step in protecting your financial well-being. By using the BrokerCheck tool and being mindful of potential red flags, you can make informed decisions and avoid costly mistakes. Remember, if it seems too good to be true, it probably is. Take the time to do your due diligence, and don’t be afraid to walk away if you’re unsure about an adviser’s credentials or conduct.
