Investors: Ask These Five Questions

Five Questions Investors Need to Ask Before They Invest

We are often asked how investors can best protect themselves against unscrupulous financial advisors and toxic investments. The truth is, most investors simply don’t ask the right questions before they sign on with a broker or put their hard-earned money into the next hot complex investment product. These five questions will at least give you a measure of protection against the worse depredations of the securities industry.

1) Does the Seller Have a License?

Con artists are master manipulators. But most of them rely on their targets taking them at their word. The very best thing you can do to protect yourself against the latest scam is to conduct your own basic background check on the person in question. Both the SEC and FINRA, the securities industry self-regulator, maintain extensive databases where you can view a broker’s background and qualifications.

Guess who you won’t find on there? The person calling herself a broker who wants to sell you an equipment leasing deal for airplanes in Thailand. No thank you.

2) Is the Investment Opportunity Registered?

Similar to the above question, checking into whether or not an investment is registered with the SEC or exempt from registration is a critical step in financial self-defense. It’s like doing a background check on the investment itself. If the investment is registered you should be able to view information about the company issuing it, the management, products, services, and finances.

3) What’s the Risk Versus the Reward?

Greater rewards always come with greater risks. Unfortunately, we all seem to want to believe that’s not true for every investor. Scam artists take advantage of our wishful thinking by making impossible promises. High return, low risk investments. Guaranteed returns for life. Etc. Don’t fall prey to one of the oldest phony sales pitches. Make sure the risk and reward are a good match.

4) Does the Investment Make Sense to You?

A lot of scams rely on bullying you with lots of complicated language and financial mumbo-jumbo. For even the most complex investment products, good and honest brokers should be able to explain to you just how it works, in plain language, so you know what you’re getting into. If they can’t explain it to you, they probably don’t understand it either, and you might want to consider other, simpler and time-tested options.

5) Where Can You Go For Help With Investments?

Government agencies and regulators like the SEC and FINRA have a wealth of information and media on their websites to help investor understand the market, products, and deal with the aftermath of a scam or dispute. These resources are free yet invaluable, and we encourage you to consult them frequently when trying to educate yourself as an investor. If however you have already been injured by misconduct due to a bad broker or brokerage-firm, you should consult with a securities attorney to protect your rights to recover.

Pennsylvania & New Jersey Securities Litigation Firm

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If you or someone you know has been the victim of investment fraud or broker misconduct, please contact our attorneys immediately for a free consultation at 215 462 3330 or by using our online contact form.

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