Step1
**Beware of cold-callers**
It's very common for rookies new to the financial business and trying to build a clientele to simply pick up the phone and start calling people with a potential money-making investment. Now many of these financial advisors (investment counselors, financial consultants, or whatever they happen to call themselves) are legit.
However, you never want to invest in something over the phone! The reason is because you don't know this person at all. And for all you know, he or she could be a scammer. Legitimate ones will allow you to request free information be sent to you about that investment opportunity, that person, and their financial firm.
Yes, financial salespeople work on commission and don't want to spend lots of time with you on the phone. That's perfectly normal and not a sign of a scammer. They'll read their script and try to get you to invest. But legitimate ones won't have a problem in sending you written information like research reports, etc. on that opportunity and their firm.
Always request it! You want to make sure you make a wise decision, not a hasty one. And you want to possibly do some checking into it yourself or run it by others to get their opinions. This way, you're not falling for the pressure tactics.
Step2
**Avoid upfront fees**
Scammers will ask you to pay some money now for the opportunity to make even more later. The reason why they do that is to walk away right here and now with pure profits. And they'll sound very convincing in telling you how it's simply a deposit or a sign of your trust. In other words, they'll explain that to protect both you and them, a good faith deposit is required to secure that investment.
However, legitimate ones will never collect upfront fees! Stockbrokers never get upfront fees or their commission. They get it when you pay for the trade (the buying or selling of stocks, bonds, etc). And you never prepay for trades! In other words, they do the trade and bill you later.
With personal financial planners (CFPs, etc), they'll take their commissions out of the profits your investments make. In other words, if you don't make money, they don't either!
Step3
**Ask questions**
Regardless of whether an investment opportunity is legit or not, you definitely want to ask questions! And not the obvious ones like how much you can make. But ones about the people behind the investment--Who are they? What experience do they have? What role do or will they play?
And you want to inquire into others who have invested in that opportunity. Are they willing to provide you with a name of someone who's invested and made money?
You also want to delve into the investment firm itself to see if they're legitimate and reputable. With big names like Edward Jones, Merrill Lynch, etc, it's very easy to check them out because they're well-known and established. But with smaller ones who you may never have heard of, it's a little harder. Check the local Chamber of Commerce to see if any complaints have been lodged aginst them. Same with the FTC (Federal Trade Commission), and the Better Business Bureau (BBB).
TIP: Scammers will often have other scammers pose as investors who've profited off that investment opportunity. So getting a name of an investor who's profited isn't always a sign it's on the up and up. It could be a scammer posing as a satisfied customer!
Legitimate ones will have written research to back their investment advice. They'll be able to provide you with a written report that outlines the opportunity, the risks involved, and projections of how profitable it might be.
Scammers will tend not to have this. They'll rely more on verbal or lightweight research that doesn't fully disclose the risks involved. Legit ones will detail the risks in their prospectus!
Step4
**Don't fall for pressure**
Remember, those pushing investment opportunities are salespeople who make money off of sales. So the hard sell approach isn't a sign of scamming, it's part of the biz itself.
However, you can protect yourself from this by never making a decision right then and there! Always request written information from an unknown person or firm before investing. Yes, the legitimate salesperson won't be overly happy because they want money now, but if they get the sense you're serious about the opportunity, they'll send you this information.
Scammers want their money now and not sending you information. So a scammer will tend to say no and hang up! In other words, scammers want to get money now, not later. Or they'll ask you to send them a small amount, say $10 as a good faith refundable deposit. Sounds ok, but you'll never see that money again! And even though $10 is very little to most people, getting that small amount from tons of people adds-up to huge bucks to the scammer!
So never fall for the high pressure sales tactics! Request information be sent to you and then think it over before you decide. Legitimate investment opportunities can wait a while for information to be sent and evaluated. Scammers can't!
Step5
**There are no guarantees of profits**
Yes, you can make money on something. But you can also loose. That's because investments go up and down with market conditions. Scammers will highlight the positives and avoid negatives! In other words, they'll always have a reason why their investment is foolproof and won't go down. So it's a guaranteed winner!
By contrast, legitimate financial advisors will highlight the positives, but admit that there are no guarantees of profits. In other words, they believe it's a money-maker for whatever reasons they mention. But they'll also concede that your making a profit isn't guaranteed.
So avoid anyone who tells you it's a sure thing! Or guarantees you'll make money. Or won't discuss the potential risks involved. Or refuses to give you time to decide. These are all signs of a scammer!
Step6
**Report scammers**
If you feel you've been scammed or are being contacted by a scammer, don't hesitate to lodge a complaint with the FTC. It's very simple. You just go onto their website, http://www.ftc.gov, and file your complaint.
You can also contact your state's Attorney General. This is the state's lawyer whose job is to protect state residents from being ripped-off.
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