Fake advisers and how to verify one

In short

A friend of mine once handed his savings to a man with a warm handshake and a fine office. He never checked a single thing about him. You can do better, and it takes about ten minutes. Before you share any money or personal details, ask the person for their full legal name and the name of their firm. Then look them up on the free government sites that list licensed advisers. If the name is not there, or the record shows trouble, you may want to think twice. A real adviser will not mind you taking your time.

The whole of it

What it is

I once sat with a woman at a church supper who told me she felt foolish. She had trusted a man who called himself a financial planner, and he turned out to be nobody at all. I told her what I will tell you now. Feeling foolish is not the problem. Nobody teaches us how to check these things, and the good people among us are the easiest to fool.

A fake adviser is someone who claims to give money advice or manage money but has no license to do it, or who has one and is lying about what it covers. Some are outright thieves. Others are real salespeople who dress up as advisers to earn your trust. Both kinds want the same thing, which is your confidence before they have earned it.

Some words are worth knowing. A registered investment adviser is a person or firm that gives investment advice for pay and is registered with the government. A broker dealer is a firm that buys and sells investments for customers. A registered representative is a person who works at a broker dealer. Any of these can be looked up. That is the good news, and I hope you hold onto it.

How it works

If you are holding a business card right now and wondering, this part is for you. Scammers rarely announce themselves. They arrive by a friendly phone call, a message on social media, a talk at a hotel meeting room, or a referral from someone you trust. They often begin with small talk and a few kind words about your family. Then they mention an opportunity with a good return and very little risk.

That last pair of words should make you pause. Real investments carry risk, and an offer that claims to be safe and rich together is telling you something false. Scammers also lean on hurry. They say the offer closes Friday, or that only a few spots remain. Hurry is a tool. It keeps you from making the phone calls that would end the whole thing.

Some also use what you might call borrowed trust. They join your church group, your club, or your neighborhood, and they let the group vouch for them. A friend may honestly recommend a crook without knowing it. That is why the check should come from you, not from a name someone else gave you.

The numbers, and where to find yours

Here is where the free tools come in, and I will point you to the real ones by name. The Securities and Exchange Commission runs a site called the Investment Adviser Public Disclosure website, and you can search a person or a firm by name there. The Financial Industry Regulatory Authority runs a free tool called BrokerCheck, which shows a broker's work history, licenses, and any complaints or disciplinary actions. Your state securities regulator can also confirm whether someone is registered where you live. The North American Securities Administrators Association keeps a way to find yours.

You will also want two numbers. The first is the adviser's Central Registration Depository number, often called a CRD number. It works like a serial number for that person in the licensing records. Ask for it and write it down. The second is the firm's number in the same system. If the person cannot or will not give you these, take that as your answer.

If you want to know how much a real adviser may charge, ask for the firm's Form ADV Part 2. It is a plain language brochure that registered advisers must offer. It lists how they get paid and what conflicts they have. For any dollar limits, ages, or percentages set by law that touch this topic, such as the most you can put in a retirement account this year, the figure is the current figure, which the official source publishes each year. The site will show the verified number with its source and date.

A worked example

Let me tell you about a man named Walt, who is sixty one and just retired from the post office. Walt had 140,000 dollars in a rollover account and a neighbor who spoke well of a planner named Dennis. Dennis called Walt and said he could earn him a steady return with no risk. He asked Walt to move the money by Friday.

Walt remembered something a niece once told him. He decided to check first. He went to the BrokerCheck website and typed in Dennis's name. Nothing came up. He then tried the Investment Adviser Public Disclosure website. Again, nothing. He called his state securities regulator, and they told him no one by that name was registered.

Now look at what Walt kept. Suppose Dennis had run off with the full 140,000 dollars. Walt would have lost every bit of it. Even a made up fee of 2 percent, which would be 140,000 times 0.02, or 2,800 dollars a year, is small next to losing the whole amount. Walt spent about ten minutes and kept his life savings. He told me he felt a little embarrassed for having doubted a nice man. I told him a nice man would have understood. Dennis, of course, stopped calling.

Where it goes wrong

I have watched good people trip on the same few stones. The first is trusting the feeling of a person rather than the record of a person. A warm voice proves nothing. The second is checking a name but not the details. A scammer may borrow the name of a real adviser, so match the license number and the firm. Then call the firm using a phone number you find yourself, not the one on the card.

The third stone is shame. People who get cheated often stay quiet, and that silence helps the thief find the next person. If you think you have been taken, you can contact your state securities regulator, the SEC, and the Federal Trade Commission, which takes fraud reports at ReportFraud.ftc.gov. Speak up fast. Early reports can sometimes stop more harm.

The fourth is skipping the payment question. Be careful if anyone asks you to pay in gift cards, wire transfers to a stranger, or cryptocurrency, or to make the check out to a person rather than to a firm. Real advisers use ordinary, traceable accounts held at known custodians. Ask where your money will be held. Find out whether it sits in your name at a firm you can verify, or in the adviser's own account.

Last, do not confuse a title with a license. Terms like financial planner or wealth consultant are not protected in every state, so anyone may print them on a card. The license and the record matter far more than the title.

Questions to answer before you leave this page

Do you have the full legal name and firm of the person you are thinking about trusting, and have you searched them on the Investment Adviser Public Disclosure website and on BrokerCheck? Did the record match what they told you, including their license and any past complaints? Have you asked where your money would actually be held, and whether it would sit in your own name? Has anyone set a deadline for you to act, and if so, why do you suppose they want that? Have you called your state securities regulator to double check? And when you picture handing over your savings, do you feel calm and informed, or do you feel a little rushed and a little unsure?