As high-profile investment schemes continue to dominate news headlines, Advocis, the Financial Advisors Association of Canada, is warning investors to be cautious in selecting financial advisors.

The association’s warnings come the same week as news that Montreal-based broker Earl Jones allegedly orchestrated a scheme that defrauded investors of as much as $50 million.

Greg Pollock, Advocis’ president and CEO, urges investors to be cautious of advisors offering unrealistic or consistent returns on an investment.

“Such promises are fundamentally contrary to the very nature of a stock market. Stock markets go up and stock markets go down. Legitimate results vary,” he said.

Other warning signs he points to include pressure from an advisor to invest beyond someone’s comfort level. An ethical and responsible financial advisor or planner, Pollock said, understands clients’ financial goals and objectives and risk tolerance.

Another warning sign is a promise of exclusivity or a “special deal,” according to Pollock. He notes that legitimate investment opportunities are generally available to a wide range of clients.

“Each investor is their own best advocate,” said Pollock. “They should take the necessary steps to research, verify and question the advisor and his recommendations.”

Advocis lays out steps investors can take to prevent being a victim of fraud. The first step is for investors to do research by getting referrals from other clients and determining whether the advisor has a license or professional designation.

The next step investors can take is to verify all the information gathered. Advocis urges investors to verify that the money invested is going to a legitimate third-party like a bank, and that statements include key information such as a street address and a list of investments and activity over a period of time.

Advocis also recommends that investors verify with the appropriate licensing body that the advisor is duly authorized to do business in the province.

Finally, investors are urged to ask questions of the advisor. Advocis warns investors that a fraudulent advisor may refuse to answer questions or may dismiss questions by stating that it’s too complicated to explain.

ICAC issues checklist

Another industry association, the Investment Counsel Association of Canada has created an investment firm selection checklist and also provides detailed information on fraud prevention.

The checklist is available on the ICAC website.

IE