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How to Protect Your Money from Investment Fraud

The age of Trump also appears to be the age of fraudster - in the financial services industry.  Not only are fines against bad actors’ way down, but the government is actively trying to roll back protections that were put in place to protect individual investors.

While this might seem unfair, the reality is that to truly protect your money from investment fraud, you need to educate yourself on what it means to keep your money safe.  This does not mean keeping your money in your mattress but making educated choices.

  1. Caveat Emptor

Ok, this isn’t your high school Latin class but in the days of deregulation in the financial services industry, a wild west mentality does tend to pervade every trade.  As such, the buyer (that’s you) need to beware.  

Unfortunately, this does not happen too often.  In 2015, the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation published a report which noted that close to 90 percent of all Americans have been approach with an investment offer which made fraudulent claims.

While this shouldn’t surprise you, the surprising part is that nearly 1 in 5 have fallen prey to these predators.  Don’t let this happen to you!  Know what you are investing, this means knowing the industry, the business model, and even the people.  Also, remember if it sounds too good to be true it probably is.

In addition, be a skeptic and look for red flags in everything prospectus you review.  Even firms are prestigious as Goldman Sachs and Merrill Lynch have had bad actors in their midst.  As such, you always need to be on the lookout for stock broker fraud.

  1. Know Your Rights

Successfully investing is all about information and a big part of this is knowing your rights and protections as an investor.  For example, all brokerage firms in the country are required to belong to the Securities Investor Protection Corporation (SIPC).  

This professional organization not only governs the industry but it is also provides insurance to cover the amount in your investment account.    While this insurance won’t protect you from losses if the market turns for the worse, it will protect you and your hard-earned money if the brokerage house, or the broker, has committed fraud.  

This sort of protection is especially important when the big banks are active in the market as many times their positions are in direct opposition to those of their customers.    As good as the coverage provided by the SIPC is, it is still stuck in the 20th century and this brings us to the next point.

  1. Technology Has a Dark Side
While the internet has changed the way we live, work, and invest, it also has its downsides.  One of them is that bad actors from almost everywhere in the world have direct access into your homes.  In fact, the information on your computer is probably more valuable than almost all the documents in your home and office combined.

As such, you want to make sure that you are ever vigilant when accessing your accounts online.  According to the FINRA, you should NEVER use a shared or public computer – or a public Wifi connection – to look at your finances.  

Frequent travelers will want to use a Virtual Private Network (VPN) to protect their computers when on a hotel’s network.  In addition, you might also want to think about using a password randomizer to make sure one password can’t unlock all your accounts.  Remember Space Balls?

  1. Hacks Happen

Cyber breaches have become an unfortunate occurrence in recent years.  Part of the challenge is that as more information goes digital, the massive servers which are used to store the collective 1’s and 0’s are easy targets for hackers.

While much of the liability for protecting your information is in the hands of the service provider, you do want to have a plan on how to react if a hack does happen.  The first thing to do is to reach out to the financial intuition.  In most cases, they will have an office already set up to help you through the process.

In addition, you will want to make a report to all three consumer credit agencies.  This way, they can keep a lookout for any fraudulent activity, such as multiple queries and new account openings in your name.  

When it comes to your passwords, you will need to go through all your accounts and change the passwords to make sure the hackers don’t have access to your account.  Finally, if an account has been compromised, then you will want to close that account and have a new one set up in your name – this way the information the hackers have been able access is essentially useless.

Remember, in the age deregulation fraud is in the air.  Protect yourself, your family, and your money.