How to Spot a Fake Financial Advisor

How to Spot a Fake Financial Advisor

If you’re like most people, you may not have an abundant knowledge of financial planning and investment principals, thus creating the need for financial advisors. Unfortunately, this need has also provided the opportunity for what we consider “fake financial advisors” to sprout up within the cracks of the sidewalk next to Main Street.

What is a fake financial advisor?

An individual who poses as a consultant, or someone who we believe falsely calls themselves a “financial advisor” because they lack what we think are the proper credentials, is a fake advisor.

Specifically, anyone who engages in the business of advising others for compensation as to the value of investments and holds themselves out to the public as providing investment advice without what we think is a proper designation is a fake advisor.

Two classic examples that make the headlines are firstly, those who would like to get a hold of your money by posing as a consultant or advisor and then just steal your money outright and are gone the next day.

Secondly, there are those who wish to swindle you with classic investment scams such as Ponzi schemes through the use of false promises and lies.

In extreme cases, these individuals might be involved in schemes such as identity theft and insurance fraud.

Luckily, there are thousands of qualified financial planners and advisors out there who offer a wide range of services and plans that can be tailored specifically to your needs and goals. However, not every person who claims to be an investment advisor has the education and experience needed to truly provide sound advice.

To make sure you’re working with an experienced and reputable financial planner, here are some red flags that you should be on the lookout for:

Verify credentials

People can claim to be a financial planner, and as such, you need to do your research before hiring anyone to advise you on financial matters and handle your assets. One of the quickest ways to verify credentials is by using BrokerCheck which is a free online tool by FINRA (Financial Industry Regulatory Authority) to check the background and experience of financial brokers, advisers and firms.

By taking the time to look into the credentials and track record of a potential financial planner can save yourself from headaches down the road.

Beware of high-pressure sales tactics

Legitimate investment advisors never use aggressive or pushy tactics during initial consultations. If someone is pushing you into making an immediate decision about investing your money, walk away because this is definitely a red flag.

Claims of high returns

There are no guarantees when it comes to investments, so if someone promises you a certain amount of money within a short period of time, chances are they’re not being truthful. If your investment advisor expects unrealistically high returns on the money he or she manages for you – especially with low risk – you may want to seek out another professional who can give you realistic expectations instead.

Unwanted products

Anyone trying to sell or offer financial services to you that you don’t understand or need, could be a fake advisor. If an advisor recommends specific products that don’t line up with what’s best for you and your wallet, then you may need to question the education of this individual.

High returns with little risk

If someone promises market-beating returns all the time with low risk investments, then this should be a major red flag indicating possible fraud (think Bernie Madoff) because the reality is you have to take on a substantial amount of risk to generally earn high returns.

Even a diversified portfolio of low-risk investments may not always beat expectations due to the unpredictability of financial markets.


How advisors get paid should be clear to prospective investors, and it’s important to get what fees you will be charged in writing. Any advisor who is not willing to memorialize in writing how they are compensated, and who they are compensated by, should be avoided.

Furthermore, it is yet another red flag if a potential advisor offers his or her advice for free. Many times an advisor who offers free advice is getting paid by a third party to sell their products and may receive a commission for getting you to buy an investment product, investment instrument, or insurance.

Consultants vs advisors

A serious conflict occurs when individuals misleadingly call themselves consultants to make it seem like you’re selecting an objective source of quality advice when in reality, their relationship is actually based on deceptive sales practices.

You should always be aware that anyone can say they’re a consultant since there is little to no regulation as to the qualifications of financial consultants. As a result, less scrupulous companies and individuals take advantage of this unclarity to falsely claim that job title to help gain your trust and assets.

Keep in mind that a consultant has no special powers or abilities. A consultant is someone who can help you make an informed decision with your money, but lacks the requisite designations or licenses to be compensated for financial advice or manage your wealth.

In other words, in this context, a consultant may not be authorized to manage your assets since he or she does not have the relevant qualifications for this job.

Consultants may provide objective information about different options but they are not allowed to advise you which option is best. Consultants should not offer advice on investments or other financial planning issues if it appears that they are in the business of offering financial advice.

In conclusion

There is no doubt that some individuals who try to pose as financial advisors do so in an attempt to swindle you. Some people posing as financial advisors may actually want to act in good faith, but due to the lack of education, skill set, and credentials, you could end up losing money.

Once you’ve found an advisor who seems reputable and trustworthy, sit down with him or her so they can explain their investment philosophy and go over what would be best for your needs. Doing this will put you one step ahead of those looking to scam unsuspecting investors and help to safeguard your investments are headed in the right direction.

“Cornerstone Portfolio Research (“Cornerstone”) is an SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training.  This publication should not be construed by any consumer or prospective client as Cornerstone’s solicitation or attempt to effect transactions in securities, or the rendering of personalized investment advice over the Internet.

A copy of Cornerstone’s current written disclosure statement as set forth on Form ADV, discussing Cornerstone’s business operations, services, and fees is available from Cornerstone upon written request.  You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from Cornerstone or the professional advisors of your choosing.

CPS eBook Reasons to Outsource



More about the author: Thomas Balis

Thomas holds a Bachelor of Science in Business from Ohio State and has since earned the Chartered Financial Analyst® (CFA®) designation as well as the Accredited Portfolio Management Advisor (APMA®) and Chartered Mutual Fund Counselor (CMFC®) certifications.