Is This a Scam? 3 Signs of Bad Financial Advice
Not all financial advice is created equal. But how do you know what to follow and what to ignore?
Before taking action, consider the following:
- What is the source?
- What steps are you supposed to be taking and why?
- What is the promised outcome?
- Have you seen others achieve this outcome?
CreditCards.com offers some red flags that should pique your concern about financial advice. If you encounter these characteristics, consider running in the other direction.
1. The Advice is Confusing
Simply put: Make sure you know what you’re getting into. If the advice you’re following is unclear, you’re bound to run into problems.
Worse, confusing advice might actually be a scam. Some companies “benefit from the fact that people don’t understand how they work,” says Thomas Nitzsche, a spokesperson for ClearPoint Credit Counseling Solutions in Atlanta.
To avoid being taken by confusing financial advice, do your research before taking any action.
Look up the organization offering the advice to see if it’s reputable. A search for “[company name] scam” should let you know whether other consumers are complaining about it.
2. The Adviser Has a Vested Interest
Question the motives of the people offering you advice: What do they have to gain from you following it?
If they’re selling a book meant to help with your financial situation, they may just be trying to make a sale.
Check the links from websites offering advice — are they getting a kickback for referring you to financial services? If an adviser isn’t upfront about the benefits he or she receives, consider it a red flag and be leery of the advice.
To avoid following faulty advice that only helps the adviser, evaluate them. Check their track record to confirm their claims. If the advice is coming from a friend, make sure they’ve actually followed it and seen the results they’re promising.
3. The Advice Comes Unsolicited
When someone reaches out with financial advice you weren’t seeking, be cautious.
Scammers will often come to you, asking you to take action concerning your finances, threatening dire consequences if you don’t.
Don’t simply jump to action out of fear. A major financial scam last year involved exactly this tactic — scammers called Americans and posed as the IRS, demanding repayment of “back taxes.”
If you receive a call, email or even text like this, contact the organization directly. Before you make any moves with your money, double-check the claim is real.
You can also vet someone while you have them on the phone. Simply asking follow-up questions once they’ve explained the “problem” to you could bring the lie to light.
“Someone worth listening to will have more than surface knowledge,” says author Tamara E. Holmes, “and if they don’t know something, they will be able to refer you to someone who does.”
For more signs of scammy or just plain bad financial advice and how to avoid it, read the full article at CreditCards.com.
Your Turn: Have you or has someone you know been approached with a financial scam? How did you handle it?
Dana Sitar (@danasitar) is a Staff Writer at The Penny Hoarder. She’s written for Huffington Post, Entrepreneur.com, Writer’s Digest and more.
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