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Five Tips to Help Scam-Proof Your Portfolio

The country's current economic climate continues to breed investment frauds and scams at astounding rates. But, not every investment adviser or broker is a crook, and not every opportunity is a scam. The trick to uncovering an investment scheme lies in these five steps.

1. Do your research. Before you invest, you should always check the registration status of any adviser, broker, brokerage firm, or security that you're considering. Call your states securities regulator to check the registration status and background of an adviser, or use FINRA's BrokerCheck to research a broker. You should also verify that any brokerage firm you're considering doing business with is a member of the Securities Investor Protection Corp. (SIPC), and that all the stocks and securities you purchase are registered with the SEC or your states securities regulator. For added peace of mind, consider checking up on a financial adviser through BrightScope's new financial adviser tool. (For more information on BrightScope, read our May 2, 2011 post here.)

2. Understand the investment. You should never invest in a stock, bond, fund, or other security or investment opportunity without knowing how it works. You should be able to explain (at a minimum) how the investment will make money, what fees/costs are associated with it, and the risks involved.

3. Verify your account's existence independently of your broker/adviser. Recent fraudsters have tried to cover up their investment schemes by issuing false account statements. If you can log on to your account online, check your paper statements against your online statements. Look for any inconsistencies, such as trades reported online that aren't shown on your paper statements or a balance difference. If you can't access your custodian or brokerage firm account online, call the company directly to check your account balance once a month, or once per quarter.

4. Only deposit money into your accounts through your custodian, brokerage firm, bank, or insurance company. Never give your financial adviser or individual broker cash or checks made payable to him/her unless it is for services payable directly to them.

5. Be wary of exaggerated claims or promises. Remember: In the world of investing, if it sounds too good to be true, it almost always is.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

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