The ability to trust the person or institution that oversees your money is essential. Whether you’re investing a relatively modest amount or millions of dollars, the negligence or bad faith actions of those entrusted with the money can be devastating for the investor and their family.
There has been no shortage of headlines over the years of well-known investment scams that have caused untold damage to people across the globe, from Charles Ponzi in the 1920s, to Bernie Madoff in the mid-2000s. However, smaller scams that don’t make the news still affect thousands of people each year. Just last month, two Toronto men were sentenced in conjunction with charges that they had operated a global currency-trading scheme, impacting approximately 2,000 investors.
The vast majority of licenced financial investors, brokers, and firms are above-board and operate according to the law, but a savvy investor should always take steps to verify any investment advisors or brokers before working with them. Further, any person who does invest funds with a third party should be aware of red flags to look out for so they can identify potential fraud in the early stages and get out before they suffer too great a loss if possible. Below, we will review steps investors can take to protect themselves before and throughout the investment relationship.
Research an Investment Firm or Broker Before You Sign a Contract
Before signing any agreements or handing over access to your money, you should take time to complete the necessary due diligence.
Use word of mouth to your advantage.
Talk to trusted friends, colleagues, and relatives to see if anyone you know has a long-term, successful relationship with their broker or financial advisor. Getting recommendations from people you trust can be an excellent first step to finding a trustworthy financial advisor.
Verify their registration status.
Canadian Securities Administrators maintains a national database of firms and individuals registered as investment dealers in Canada. As a first step, you should conduct a search of the online database to confirm any person or firm you’re considering working with is registered. If they are not, this could mean they are offering services without the necessary licence, which should be reported to the Ontario Securities Commission.
Review their disciplinary history.
Once you’ve confirmed the firm or person is registered, you should ensure they are not facing disciplinary and review their disciplinary history. Canadian Securities Administrators has a free online search tool that enables users to search firms and individuals for disciplinary history by several provincial bodies at the same time, dating as far back as 1987.
Confirm their ability to trade without restrictions.
Conduct a search to see if the person or organization you’re looking into is the subject of any cease trade orders, which place restrictions on the types of trading activities the person or company is permitted to conduct.
Take the time to conduct a search of the investor or firm’s name online and see what comes up. This could help uncover information not available through the national registries, such as unfounded complaints or negative rumours.
Warning Signs to Look Out For
The following is a non-exhaustive list of potential warning signs that could indicate investment fraud. While some may not necessarily mean you are in danger of being scammed, they should serve as red flags that prompt you to conduct further research.
You are approached unsolicited.
If someone reaches out to you without prompting, whether by phone, email, or mail, you should always take the time to thoroughly look into the person or company before taking any further steps. If you’re unsure, speak to someone knowledgeable who you can trust to get their thoughts before you move forward.
You are pressured to sign quickly.
If the person or firm you are considering working with is placing pressure on you with offers of “limited-time-only” opportunities, or other high-pressure sales tactics, this should be a warning to slow things down. A legitimate broker or advisor will want to ensure you’re making an informed decision, and that you have no hesitation or outstanding questions before signing up for their services. If you are being pressured to act fast, this could indicate that the person pressuring you wants to prevent you from looking into their offer too closely.
The offer seems too good to be true.
Investments can run the gamut in terms of risk, from very low to very high. However, the reward is usually in line with the level of risk. A low-risk venture will commonly yield a low reward, whereas a higher-risk opportunity usually offers greater returns. If an investment advisor or broker is promising a reward that far outpaces the risk, this should be a warning that the opportunity might not be legitimate and warrant further examination before committing.
You’re given ‘insider information’.
Insider trading is illegal throughout Canada, so no legitimate broker or investment firm should make you think you’re privy to information that others don’t have. If they do, it could mean they are trying to encourage you to sign up for a fraudulent opportunity with misinformation. If the information turns out to be legitimate, you could become implicated in criminal activity by acting on it.
Before you commit to working with a new investment advisor or firm, take the time to review the above information and complete the necessary research to satisfy yourself that the person or firm is trustworthy. In addition to the above, the Ontario Securities Commission also offers a free tool that can help investors identify potential fraud before they get involved. If you are still unsure, talk to people you can trust who may be better informed about investments, and get their opinions before you take a chance with your hard-earned money.
For Exceptional Legal Representation in Claims Against Brokers and Financial Advisors Contact Milosevic & Associates
The highly experienced professional liability lawyers at Milosevic & Associates represent investors who have received negligent advice from their investment advisors. To learn more about how we can help you call us at 416-916-1387 or contact us online.