Dishonest Advisors

Dishonest advisors are those who engage in fraudulent or illegal activity: the embezzlers, the con men and the Ponzi schemers. Dishonest advisors are also those fiduciaries who breach their duties; who fail to uphold the client’s best interests when they are legally required to do so.

Because the investment performance of advisors is often inconsistent, it can be difficult to tell whether an advisor is inept, unlucky over some short period of time or guilty of illegal activity. Consider also the following facts:

  • We are often unable to tell when people lie to us. Studies have shown that we may only be able to identify lies 50 percent of the time - attributed to psychology professor Paul Ekman in Harvard Business Review on Decision Making, (Boston: Harvard Business School Publishing, 2001).
  • The worst offenders in the investment community (advisors and asset managers) are often highly regarded within the community. Other investors and the authorities are reluctant to challenge them.
  • A criminal who carefully siphons off small amounts of money from an investor’s account may be very difficult to identify.

There is an authoritative source, the Financial Industry Regulatory Authority (FINRA) which provides regular reporting on inappropriate and dishonest behaviors exhibited by certain players in the investing game. These players include brokerage firms and the representatives employed by them. Breaches by registered investment advisors are listed on the SEC site.

In my book, Play to Prosper: The Small Investor's Survival Guide, I list a number of examples drawn directly form FINRA's October 2009 report, “Disciplinary and Other FINRA Actions.” These monthly reports are available publicly on the FINRA site.

The October report is roughly 40 pages long and contains listings of fines, suspensions and decisions handed down by FINRA. There are dozens of entries for this one month, and many are examples in which investors are victimized directly.

Crooked investment schemes have been with us as long as the greed that encourages and nourishes them, which is to say throughout history. The bottom line is that it’s not easy to identify dishonest (or inept) advisors. The contents of this site and the Play to Prosper book series are designed to help you with this identification.

Top

Back