Working with an investment broker is the same as going to the auto shop to get your car fixed. Now, you might be wondering: How on earth is an auto mechanic at all like an investment broker? Well, it all comes down to trust.
Investing with Someone Is a Matter of Trust
Think about it. Most people don’t know a thing about the inner workings of a car, and the more computerized cars become, the harder it is to know how to fix something with your car yourself. You are essentially at the mercy of the auto mechanic who works with cars on a daily basis. Indeed, when you go to pay your bill after the mechanic fixed whatever funny noise your car was making, it is likely that the mechanic will describe the problem using names of car parts that are alien to you. In sum, you are trusting your mechanic to have fixed the problem and not padded your bill with unnecessary costs.
That is the same experience most people have with investment brokers. You are not an expert in investments (if you were, you would be doing your own investing). Yet, the details of the stock market, and the various investment instruments out there can get confusing pretty quickly. So, you trust your investment broker to put your money in investments that will result in reasonably safe returns. Just like with the auto mechanic, there are plenty of unknowns. Thus, there is a level of faith that you put in your investment broker.
The problem comes when the investment broker, or your auto mechanic, is dishonest and betrays that trust. With cars, the only real way to know whether the mechanic has betrayed your trust is if the car breaks down. By contrast, there are some “red flags” that will tell you ahead of time if an investment option, or offer, is something you should avoid.
In this article, we will talk about 4 ways to know that an investment is too good to be true, and therefore, should be avoided. If, after reading this blog, you would like to learn a little more about getting an investment fraud attorney to help you with your situation, we welcome you to call former Wall Street attorney Attorney Melanie Cherdack.
Investment fraud attorney Melanie Cherdack understands the plight of those who were victims of investment fraud. Because she has represented the investment side as a former Wall Street attorney, she has “seen it all” when it comes to the schemes that investment brokers use to defraud their clients. Contact us today on our online contact form, or by calling 888-768-2499. We are the investment fraud attorneys who will level the playing field for you.
There is Always a Little Risk, But Know the Red Flags
We all know that investing always involves some risk. But you must understand that risk and it must be disclosed to you. That said, when something seems too good to be true, then you should follow your instincts and avoid it.
Here are a few tell-tale signs that an investment broker does not have your interests at heart, or may be a prime candidate to engage in investment fraud.
Sign #1 – Borrowing Money to Invest, or No Liquidity
An honest, ethical investment broker would never suggest that you leverage your life savings for one particular investment. Thus, if you need to borrow money from other places, such as your retirement savings, to put money into one “sure fire” investment, don’t take the bait, or at least look before you leap. Some sophisticated investors will borrow for certain investments, but that is something left to high-stakes investors, not people trying to protect their retirement nest egg.
By the same token, if you are encouraged to invest in something that is not liquid, i.e., cannot be easily turned back into cash, then it is a “red flag” that the investment may not be on the “up and up.” Generally, only fixed-term securities like Certificates of Deposit (CDs), some partnership interests, and other vehicles that restrain liquidity by written contract ahead of time can appropriately restrain liquidity. Otherwise, delays in withdrawing money can be a strong signal that the investment option is not legitimate.
Sign #2 – Questionable Broker Tactics
Be skeptical if your broker works on commission. Find out ahead of time what the commission is on a particular product. The broker may be incentivized to put your money in a high-commission investment that is not in your best interest. Furthermore, a broker who is using high pressure sales tactics, “sales-y” language like the “next big thing,” or is putting a timeline on choosing an investment because it is “hot,” is giving you signs that you should walk the other way.
Sign #3 – Terminology Overkill or Unregistered Investments
If a broker is making an investment sound too complicated, then your skeptical antennae should go up. Yes, there are some terms of the trade, but if you don’t understand an investment, then don’t invest in it.
By the same token, unregistered investments, which do not have to abide by the same securities rules and regulations are only for experienced or professional investors. The safer bet is to stick with traditionally regulated investments.
Sign #4 – Unusually High Returns
Usually, the higher the return, the riskier the investment. It would be unwise to trust someone promising a high rate of return in a short period of time. This is almost always a red flag.
The flip-side is also true. Investments that guarantee returns, i.e., low-risk or no-risk investments, are also something to be wary of. Most investments carry some risk and that risk can vary. So, avoid jumping at an opportunity that seems too good to be true, because it most likely is.
Call an Investment Fraud Attorney to Help You
If you or a loved one has been the victim of investment fraud, then you need an experienced, aggressive investment fraud attorney to zealously pursue your case against the perpetrators. We invite you to contact attorney Melanie Cherdack.
Because she has been in the trenches as a former Wall Street attorney, investment fraud attorney Melanie Cherdack and her team of experienced attorneys have seen just about every type of investment fraud or investment scam that is out there. While almost every investment carries a degree of uncertainty and risk, you may have been unnecessarily exposed to such risk due to the actions of others.
If you have lost money due to investment fraud or simple broker negligence, it is crucial to hire a lawyer who fully understands this area of law. Former Wall Street securities attorney Melanie S. Cherdack represents individual and institutional investors who are unwitting victims of investment fraud and broker negligence. She heads up a group of attorneys who represent investors across the United States. Contact us by filling out our online contact form, or calling 888-768-2499.