1. Misalignment of Interests: While RIAs are held to a fiduciary standard by the Investment Advisers Act of 1940, this does not entirely eliminate the risk of self-interest affecting an RIA’s advice. For instance, RIAs might favor only those investment products from firms that are paying significant commissions to the RIA for selling that product. This means there is a significant potential conflict of interest causing an RIA to recommend the same small set of investment products to every potential client.
2. Limited Product Offering: Many RIAs have a limited range of investment products due to affiliations with certain investment companies. This could mean you may not have access to the full spectrum of investment options that might be more suitable for your retirement needs.
3. Lack of Transparency: Even though RIAs are required to disclose all material facts to their clients, the complexity of the investment products such as annuities and life insurance products may result in you not fully understanding certain investments, the adviser’s commission for selling a specific product, or the risks involved in an investment strategy recommended by the RIA.
4. Qualifications and Experience: RIA’s expertise and experience can vary significantly. While some have extensive experience and hold multiple qualifications, others might be newer to the industry and less experienced. A less qualified RIA might not provide the best advice or understand the intricacies of complex investment strategies. Further, it is important to check your adviser at brokercheck.org and investigate their history. There are plenty of RIAs who are and RIA because they are unable to be a stockbroker (yes, there is a huge difference.)
5. Costs: RIAs usually charge a fee based on a percentage of assets under management, which might be higher than what you’d pay if you managed your investments independently or did not invest in annuities or life insurance products. Additionally, some RIAs may have hidden costs or might charge additional fees for specific services on top of the percentage fees they charge.
6. Poor Communication: In some cases, you might find that your RIA does not communicate effectively or regularly. This could leave you feeling uninformed about your investment decisions and progress toward your retirement goals.
7. Inadequate Personalization: Some RIAs might use a one-size-fits-all approach to investment strategies, which could result in your retirement assets not being fully able to meet your specific goals, risk tolerance, and timeline to, or in, retirement.
8. Limited Accessibility: Depending on the RIA, you may face issues regarding the accessibility of your adviser. If they manage a large number of clients, they might not be available when you need them, impacting your ability to make timely decisions. This applies to the investment products that RIAs may recommend to you because the investment products often have significant penalties for early ‘surrender’ and withdrawals, or even have no option to gain access to your money.
9. Risk Management: Not all RIAs are skilled in managing risk effectively. A failure to appropriately assess and mitigate risk could potentially result in substantial losses for your retirement portfolio.
10. Lack of Oversight: While RIAs are regulated by either the Securities and Exchange Commission (SEC) or state regulators, this does not guarantee that your investments are safe. If the oversight body does not effectively regulate the RIA’s practices, your retirement assets could be at risk. Another oversight issue is that many RIA’s have no insurance to provide coverage to you for the RIA’s potential negligent or fraudulent handling of your account.

Despite these potential problems, it’s important to remember that many RIAs provide excellent service and can significantly contribute to the growth and protection of your retirement assets. The key is doing your due diligence in selecting an adviser. Check their qualifications, regulatory records, and references. Understand their fees, services offered and their investment philosophy. Good communication is essential, so ensure you feel comfortable discussing your needs and goals with them. Finally, always remember that it’s your retirement – stay informed and involved in the management of your assets.

Retirement planning can be a complex process, but knowing the potential pitfalls of entrusting your retirement assets to an RIA can help you make an informed decision that aligns with your retirement goals and financial situation.

A margin account is a type of investment account that allows investors to borrow funds from their broker-dealer to purchase securities. With a margin account, investors are able to leverage their trades by borrowing against the value of their portfolio. This means that investors can potentially earn larger returns on their investments but also exposes them to increased risk.

Broker-dealers have a number of responsibilities when it comes to margin accounts. One of their primary responsibilities is to ensure that investors understand the risks associated with trading on margin. This includes providing investors with a detailed explanation of how margin accounts work, the potential risks and benefits, and any costs or fees associated with trading on margin.

Another important responsibility of broker-dealers is to ensure that investors meet the eligibility requirements for trading on margin. These requirements may vary depending on the broker-dealer, but typically include factors such as an investor’s financial standing, trading history, and investment objectives. Broker-dealers must also maintain appropriate documentation to demonstrate that investors meet these requirements.

Once an investor has been approved for a margin account, broker-dealers are responsible for monitoring the account to ensure that the investor is maintaining sufficient collateral to cover any potential losses. This is known as a margin call. If the value of the investor’s portfolio falls below a certain level, the broker-dealer may issue a margin call, requiring the investor to deposit additional funds or securities to maintain the required level of collateral.

Broker-dealers should clarify for investors that the broker-dealer has almost unfettered control over the margin account. The broker-dealer, in the face of a ‘margin call,’ can raise money to meet the margin call by selling stocks from an investor’s account without first asking the investor. The broker dealer can even sell out the entire account without the client’s authority to protect the broker-dealer.

Broker-dealers are also subject to the Financial Industry Regulatory Authority’s (FINRA) rules regarding margin accounts. These rules require broker-dealers to provide investors with a risk disclosure statement outlining the risks associated with trading on margin. Broker-dealers must also provide investors with regular statements outlining the status of their margin accounts, including the amount of margin used and any potential margin calls. Additionally, broker-dealers must also comply with all applicable laws and regulations governing their conduct, including the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

Another important responsibility that broker-dealers have is the responsibility to ensure that all investors are treated fairly and with integrity. This includes providing investors with accurate and timely information about their margin accounts, as well as ensuring that any fees or charges associated with trading on margin are reasonable and transparent. Broker-dealers must also have adequate safeguards in place to protect investors’ assets and prevent unauthorized access or theft.

Margin accounts offer investors the opportunity to potentially earn larger returns on their investments, but such accounts also come with increased risk. Broker-dealers have a number of important responsibilities when it comes to margin accounts, including ensuring that investors understand the risks and benefits of trading on margin, monitoring accounts to ensure sufficient collateral, preventing illegal trading practices, and complying with applicable regulations. As an investor, it’s important to work with a reputable broker-dealer who is committed to transparency, fairness, and integrity when it comes to margin accounts.

Yet there is one investment risk – the risk of fraud – which at first glance seems uniquely difficult to mitigate. Fortunately, there are indeed several steps investors can take to protect their hard earned investment dollars from fraud.

In the United States, the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) each offer investor resources for reducing the risk of investment fraud.

FINRA advises investors to follow three specific steps to avoid fraudulent schemes: staying informed about ongoing scams, thoroughly vetting the background of any investment opportunity or professional an investor chooses to engage with and keeping current with common tactics employed by fraudsters. [1]

Stay Informed With Investor Alerts

Importantly, both the SEC and FINRA issue periodic “investor alerts” which explain recent fraudulent investment schemes toward which investors should exercise caution. Investor alerts from the SEC can be found here, and investor alerts from FINRA can be found here. Vet the Investment Opportunity

investors should also thoroughly vet the background and credentials of any investment opportunity or professional they choose to engage with [1]

When it comes to vetting the background of investment professionals, FINRA first recommends directly asking whether the individual is licensed to sell the investment. [2] FINRA and the SEC also both offer online resources to help confirm whether the professional is indeed registered as required under law. [2]

These resources include repositories listing the financial professionals who are registered with federal and/or state agencies, as well as resources which indicate whether the individual has engaged in known fraudulent acts in the past. [2] Investors can also use these resources to determine whether the investment they are considering is registered with the SEC. A one-stop shop for each of these free resources can be found here. Keep Up to Date on Common Fraudulent Tactics

Finally, a third helpful strategy for keeping hard earned investment dollars safes is staying aware of common investment fraud schemes along with “red flags” that often signal fraudulent activity.

Investors should always keep in mind that if an investment opportunity seems “too good to be true,” then it likely is.

In particular, common red flags to be on the lookout for include mentions of guaranteed or overly consistent returns, particularly complex investment strategies, and “pushy” salespeople. [3] Often, fraudsters will employ high-pressure sales tactics to present supposed investment opportunities as exciting ways to make large sums of money with comparably little effort required from the investor. [3]

Investors should also keep in mind that many investments are inherently risky. If a supposed investment professional advertises a new investment opportunity with no risk at all, or if any other red flags arise, it is likely time to dig deeper into the specifics of the investment opportunity.

Exercising careful attention to both the supposed processional and the investment they are offering is often the best strategy to protect investments avoid falling victim to a fraudulent investment scheme.

Sources: [1] https://www.finra.org/investors/protect-your-money [2] https://www.finra.org/investors/protect-your-money/ask-and-check [3] https://www.finra.org/investors/protect-your-money/avoid-fraud/red-flags-fraud

The Investor Alert, released by the SEC’s Office of Investor Education and Advocacy, highlights the unique dangers investors face when evaluating investment prospects and making investment decisions via social media platforms or over the internet. In particular, the alert warns investors that investment information portrayed on social media may be “inaccurate, incomplete, or misleading.” [1]

Furthermore, the alert cautions that the broad-reaching and low-cost nature of social media can create “false impression of consensus or legitimacy” of investment prospects, creating the illusion that far more people are making the investment than truly are. [1]

More specifically, the Investment Alert sheds light on several common schemes used by fraudsters to target and take advantage of unsuspecting investors online. These schemes include impersonation schemes, “crypto” investment scams, and romance scams. [1]

Impersonation schemes are often, and easily, perpetrated over social media because social media platforms allow fraudsters to create false or misleading profiles. [1] For example, a fraudster might create a social media account impersonating a legitimate broker or investment adviser. [1] The fraudster can then use their false identity to convince investors to make investment decisions which enrich the fraudster at the investor’s expense.

As a result, social media users should be wary of investment opportunities communicated solely over social media platforms. Investors are urged to look out for typos within a supposed broker or adviser’s profile page or messages, as well as by considering whether or not the social media platform has “verified” the user as person they claim to be. [1]

Crypto investment scams are also on the rise, given the continued popularity of cryptocurrencies and their relative novelty. These scams often sound “too good to be true” and may take the form of a Ponzi or pyramid scheme involving crypto or the blockchain, promising low or no risk with high investment returns. [1] If an investor chooses to invest in cryptocurrency, the credentials of the investment opportunity can be investigated by using the search tool provided by the investor.gov website. [1]

Finally, online romance scams have also become increasingly prevalent in recent years. This type of scheme typically starts with a fake dating app or social media profile, which reaches out to a victim to begin the trust-building process. Once a relationship of trust has been created, the fraudster behind the fake profile will begin to inform the victim about supposedly lucrative cryptocurrency or other investment opportunities. [1]

Because trust has been built over time, victims may be more likely to believe the fraudster and funnel their hard earned money into one of these fraudulent investment scams.

Along with providing background information on each of the fraudulent schemes discussed here, the SEC’s Investment Alert provide additional information on market manipulation schemes and community-based investment fraud schemes. [1]

The overarching takeaway from this Investor Alert is clear: fraudsters are increasingly using social media and other online platforms to take advantage of unsuspecting investors, and their schemes are only becoming more creative.

Investors should remember that online platforms allow fraudsters to easily fabricate and disperse misleading investment information to the masses. Often, the best way to protect an investment is through careful research into any investment opportunity. Per the Investor Alert, a heavy dose of skepticism when an opportunity sounds “too good to be true” goes a long way.

If you have a question or concern about an existing investment or investment opportunity, reach out to the attorneys at Savage-Villoch law.

Sources: [1] https://www.sec.gov/oiea/investor-alerts-and-bulletins/social-media-and-investment-fraud-investor-alert

According to the alert provided by the SEC’s Office of Investor Education and Advocacy (“OIEA”), the SEC has received reports of several individuals receiving communications from people posing as SEC personnel. Whether these communications come in the form of emails, phone calls, or letters, the SEC warns investors that they are “in no way connected to the SEC.” [1]

The fraudulent phone and voicemail messages are particularly misleading because they come from phone numbers that appear to be connected to the SEC. [1] The communications have targeted victims by raising investment-related concerns, such as “suspicious activity” in both checking and cryptocurrency accounts.[1]

In raising these false concerns, the fraudulent callers solicit personal information as well as payments for alleged SEC enforcement actions. In some cases, the fraudsters may even impersonate a particular SEC employee in an effort to gain trust from their victims. As such, the OIEA urges investors to independently verify the identity of anyone claiming to be an SEC or other government employee. [1]

The alert also offers several ways to verify whether a communication is actually coming from an SEC employee. First, you can check with the SEC’s personnel locator in order to get in direct contact with the staff member who purportedly reached out from the SEC. The phone number is (202) 551-6000, which can be used to speak directly with SEC staff members to confirm whether they contacted you. [1]

In addition, concerned investors can also call (800) SEC-0330 or email help@SEC.gov to verify whether a communication truly came from the SEC. It is critically important to verify using one of these methods before providing personal information or any form of payment in response to an unsolicited communication claiming to come from the SEC. [1]

In responding to this impersonation scheme, the SEC also unequivocally noted that its employees do not make unsolicited contact with members of the public and do not solicit payments or seek personal information outside the bounds of formal enforcement actions. Furthermore, the SEC asks that anyone who receives a communication falsely appearing to be from the SEC submit a complaint to the SEC’s Office of Inspector General. [1]

Beyond this particular fraudulent scheme, the SEC has released several similar investor alerts in recent years. In general, impersonations of SEC and other government staff target victims who may trust the communication due to the seemingly serious nature of the communications and the illusion that the communications have come from trustworthy government actors.

In 2018, the SEC discovered instances of social media accounts impersonating the SEC and urged investors to independently verify that any social media account they engaged with and which purported to be connected to the SEC was in fact SEC-affiliated.[2] The SEC also reminded investors that per their policies, no SEC official would discuss nor endorse specific investments over social media. [2]

In our increasingly connected world, investors are encouraged to remain vigilant and skeptical of unsolicited communications asking for personal or financial information. And as always, please reach out to your trusted advisor or attorney at Savage Villoch Law with any questions or concerns.

Sources: [1] https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/beware-0 [2] https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/investor-11