2 Common Investment Scams You Can Easily Avoid

Sep 16, 2016
Author: Scott Hanson


Do you have any accounts with Wells Fargo? Just last week the bank was hit with $185 million in fines for creating two million fraudulent accounts in the names of existing customers to rack up millions of dollars in fees.

The banking giant fired the 5,300 employees who it was determined had been involved.

While all this is disappointing, it’s really not surprising. For years, I’ve written about the inherent conflict-of-interest of commission-dependent brokers and mega-bank salespeople providing financial advice. While this particular Wells Fargo scam wasn’t investment-related, at least not this time, it is directly related to trust and motivation. Simply, if there’s a financial incentive for an employee to push a particular product or service, it’s safe to say that those offerings are more likely to be emphasized.

Even if those offerings aren’t in your best interests.

The news about Wells Fargo got me to thinking about a couple of common scams that you should look out for.

1. A guarantee of high returns with little or no risk.

Just as it’s a “basic speed law” to never drive faster than it is safe, it’s a basic investing law that all investments, be they stocks, real estate, exchange-traded funds, mutual funds, or commodities, all these entities carry at least some risk. The second part of this “law” is that it is also true that the higher the possibility of return, the higher the degree of risk.

If you find yourself meeting with someone who is trying to entice you with the “high rate of return on an investment,” and then tries to “close” you by understating (or dismissing) the level of risk that particular investment carries, immediately recuse yourself from the room and run, walk or roll through the nearest exit.

2. A bank broker or salesperson scamming you or your elderly parents.

Here’s a simplified example of something I’ve witnessed dozens of times. An elderly parent dies, and a review of their estate reveals that they recently purchased a long-term annuity. The son or daughter goes to the bank in question, and the earnest looking salesman explains the transaction away as something the parent had wanted.


Elder abuse is a serious issue in our society. Getting the elderly to sign off on inappropriate investment vehicles—especially long-term annuities that are ill-liquid and have huge surrender charges—makes me angrier than just about anything else I see in the financial services industry.

Make sure you have a talk with your parents, or your partner. While nobody wants to relinquish control of their money, they don’t have to. Instead, what we all must be convinced to do is to share our information with those we love. That’s because passively waiting and hoping for the best, hoping that we will be the person who gets through the fraud-gauntlet unscathed is exactly what makes us an ideal target for fraud.


There are great advisors in the world, and it really doesn’t take a miracle to find one. Our short, free eGuide, How to Select a Financial Advisor, was written specifically to protect people from making avoidable mistakes that could cost money, time and stress.

Learn how to protect yourself, today.

Related Topics:

Share This Post: