Investors Are Increasingly Losing Their Life Savings to Scammers Impersonating Financial Advisors Online
The world of personal finance can be an intimidating place to navigate, especially when it comes to entrusting someone with your hard-earned money. While many financial professionals are legitimate, ethical, and focused on helping their clients achieve their financial goals, there is an unfortunate reality: scammers are constantly evolving their tactics to exploit well-meaning, unsuspecting investors.
Recently, fraudsters have gone so far as impersonating legitimate companies and professionals, creating fake websites, social media profiles, and other online presences to lure victims into their traps. Thus, it is up to would-be investors to remain vigilant, verify the authenticity of the professionals they engage with, and pay attention to signs of potential fraud before making financial commitments.
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Times have changed. Scammers are no longer relying on poorly written emails or text messages from unknown senders. Instead, they are leveraging advanced tactics, such as duplicating the branding and websites of reputable financial firms to create a veneer of legitimacy. And by using artificial intelligence tools to create phony identities that mimic legitimate advisors, fraudsters have been able to deceive investors into trusting them with sensitive financial information, or even worse, their entire life savings.
The Washington State Department of Financial Institutions, for example, recently issued a warning about fraudsters impersonating Capital Wealth Planning LLC using WhatsApp to recruit victims for fraudulent schemes. Similarly, reports have emerged about scammers in West Africa impersonating legitimate financial advisors to defraud investors in the United States, highlighting the global reach of these ploys. Another such instance occurred when fraudsters manipulated legitimate financial instruments and branding to deceive investors looking for safety in “yield term deposits.”
According to the Federal Trade Commission, in 2023 alone, consumers reported losing more than $10 billion to fraud, with investment scams accounting for over $4.6 billion of these losses. And imposter scams—where fraudsters impersonate trusted individuals or organizations—resulted in nearly $2.7 billion in reported losses.
One of the reasons these scams are so successful is because some investors seek to hit it big all in one swing. Scammers are well aware of this exuberance and craft their schemes to appeal to individuals who are eager to get rich quickly. Promises of guaranteed high returns, “secret” strategies, or exclusive investment opportunities that require immediate action should all be seen as red flags.
Nevertheless, scammers know that the allure of outperforming the markets in one bold move is all it takes to convince some investors to throw caution to the wind. This desire often stems from impatience or frustration with the steady, incremental nature of traditional investing. And scammers exploit this mindset by offering what appears to be shortcuts to wealth.
Additionally, investors who perform a rushed or superficial due diligence process are particularly vulnerable to fraudsters impersonating legitimate financial professionals. In their haste to take action and see results, they may overlook critical details or fail to verify the authenticity of the advisor and their claims. Scammers exploit this tendency by presenting themselves as polished, professional, and credible, often using tactics designed to create a sense of urgency.
While no due diligence process is entirely foolproof, there are steps you can take to safeguard your finances and avoid falling victim to scams, which include:
Verifying Credentials: Use regulatory websites like the SEC’s Investment Adviser Public Disclosure (IAPD) or FINRA’s BrokerCheck to confirm the professional’s credentials and disciplinary history.
Checking the Firm’s Authenticity: If the advisor claims to work for a well-known reputable firm, visit the official website directly (not through links they provide) and search for their name.
Avoiding Unsecure Communication Channels: Be cautious of so-called financial professionals who use non-traditional communication platforms like WhatsApp or other social media platforms to discuss investments. Typically, regulators will prohibit licensed financial professionals from utilizing such communication channels to conduct official business.
Understanding Fee Structures: Legitimate advisors are transparent about their fees and how they are compensated. If the fee structure seems overly complex or obscure, consider it a red flag.
Payment in Bitcoin or Other Cryptocurrencies: No reputable financial professional will insist on being paid in cryptocurrency. This is a common tactic used by scammers to make transactions harder to trace and reverse.
Requests for Payment to Personal Accounts: A legitimate financial advisor will always have you make payments to the institution they represent, not to them directly. Be wary of anyone asking you to write a check to their name or send money via personal payment platforms such as Venmo or CashApp.
Guaranteed Returns or Boasting Online: Be highly skeptical of anyone who guarantees investment returns or flaunts their returns on social media. Financial markets are inherently unpredictable, and no reputable advisor or institution will make such promises.
Given the sophistication of these scams and the ease of creating them, it is critical for investors to thoroughly vet financial professionals before engaging with them. Due diligence is not just about verifying credentials; it involves regulatory oversight, understanding both a person’s professional affiliations and methods of communication, and assessing whether they are truly a professional themself. Failure to do so can result in devastating financial losses, not to mention a breach of trust that can take years to recover from.
While the prevalence of financial scams is alarming, you can protect yourself by staying informed and vigilant. By conducting thorough due diligence and remaining aware of common red flags, you can significantly reduce the risk of falling victim to fraud. Remember, a legitimate financial professional will welcome your questions and appreciate your caution.
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Malcolm Ethridge, CFP® is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. He is also the Managing Partner of Capital Area Tax Consultants.
Malcolm’s areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
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Disclosures:
The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.
Investments in securities and insurance products are:
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE