Common Investment Advice Malpractice Pitfalls To Look Out For

Justin Freeman

Common Investment Advice Malpractice Pitfalls To Look Out For

  • Using a financial advisor comes with its own set of risks
  • The number of claims relating to malpractice is on the rise
  • These are the common pitfalls to look out for

Using the services of a legitimate investment advisor is often seen as a way of avoiding the risk of falling foul of fraudsters, but it comes with its own set of problems. More and more investors are finding out that if the advice given by an agent constitutes malpractice, then there could be a chance to reclaim losses.

We’ve created a list of the most common malpractice risks to look out for. Unfortunately, it’s not just Ponzi schemes and social media scams that investors need to be wary of.

Common Investment Advice Malpractice Pitfalls To Look Out For

A common way an advisor might breach the duty of care protocols is if they do not consider a client’s specific needs and personal situation when constructing an investment plan. Liquidity of assets needs to be factored in, especially during an economic downturn when there is an increased risk of an investor becoming unemployed.

Portfolio diversification is also on a good advisor’s ‘to-do’ list. The rollercoaster ride the financial markets experienced between 2020 and 2022 highlights how spreading risk can smooth out returns and protect wealth. It’s one of the basic rules of successful investing.

Investing using margin scales up risk-return and isn’t something most long-term investors commit to doing. The ability to borrow money to take larger positions is great when trading decisions go your way, but it can blow up accounts when they go wrong. Any advisor that commits a client’s account to trade on margin will need justification that it was in the best interests of an investor who was also fully aware of the risks.

Reinvestment decisions also need to be closely monitored. If an advisor allocates capital to a particular asset without justification, they might receive commissions in return, but it might not be in the client’s best interests.

The above red flags relate to decisions made by advisors, but there can also be a malpractice case relating to necessary action not being taken. Depending on the nature of the agreement, an advisor can be liable if they don’t move money to protect wealth.

Final Thoughts

The advice offered by agents should fall in line with the market protocols. If it doesn’t and leads to losses, as many investors are discovering, there can be grounds for making a compensation claim. If third-party advice is something an investor wants to avoid altogether, then that can also cut back on fees and commissions. But self-traders should mitigate fraud risk by ensuring they choose a regulated broker.

 

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers, and you can share your experiences here. If you would like to know more about this particular topic or have been scammed by a fraudulent broker, you can also contact us at [email protected]


Justin Freeman

Latest news

Forex vs Crypto: What’s Better For Beginner Traders?
The crypto and forex markets are two of the world’s most popular among investors and traders. Read more
Three Great Technical Analysis Tools for Forex Trading
You don’t have to be very technical minded to make use of technical analysis in your forex trading. Read more

Safest Forex Brokers 2024

Broker Info Best In Customer Satisfaction Score
#1 Blackbull LogoYour capital is at risk Founded: 2014 Global Forex Broker
Number One Broker
BEST SPREADS Visit broker
4.8
#2 AvaTrade LogoYour capital is at risk Founded: 2006 Globally regulated broker
Number One Broker
BEST CUSTOMER SUPPORT Visit broker
4.9
#3 * 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money Founded: 2008 Global CFD Provider
Number One Broker
Best Trading App Visit broker
5
#4 Between 74-89 % of retail investor accounts lose money when trading CFDs Founded: 2010 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
4.9
#5 Forex Broker eToro Logo76% of CFD traders lose money Founded: 2007 Global CFD & FX Broker
Number One Broker
ALL-INCLUSIVE TRADING PLATFORM Visit broker
4.9
#6 XM LogoYour capital is at risk Founded: 2009, 2015 and 2017 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
5
#7 FxPro LogoYour capital is at risk Founded: 2006 CFD and Cryptocurrency Broker
Number One Broker
CFD and Cryptocurrency Visit broker
5

    Forex Fraud Certified Brokers

    BlackBull Logo Small
    AvaTrade logo
    eToro Logo
    XM Logo
    FxPro logo
    FXTM Logo
    CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.