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This knowledge article is part of a series of knowledge articles aimed to help you define your roadmap to savings and investing. To review the previous knowledge article in this series, click here. To review the table of contents for the articles, click here.

How To Avoid Problems

Choosing someone to help you with your investments is one of the most important investment decisions you will ever make.

While most investment professionals are honest and hardworking, you must watch out for those few unscrupulous individuals. They can make your life's savings disappear in an instant.

Securities regulators and law enforcement officials can and do catch these wrongdoers. But catching them doesn't always get your money back. Too often, the money is gone.

The good news is you can avoid potential problems by protecting yourself.

Let's say you've already met with several investment professionals based on recommendations from friends and others you trust, and you've found someone who clearly understands your investment objectives. Before you hire this person, you still have more homework.

Make sure the investment professional and her firm are registered with the SEC and licensed to do business in your state. And find out from your state's securities regulator whether the investment professional or the firm have ever been disciplined or have any complaints against them. You can get that number by calling the North American Securities Administrators Association (NASAA) toll-free at (888) 84-NASAA.

You should also find out as much as you can about any investments that your investment professional recommends. First, make sure the investments are registered. Sometimes a simple phone call to your securities regulator can prevent a lot of heartache.

Be wary of promises of quick profits, offers to share "inside information," and pressure to invest before you have an opportunity to investigate. These are all warning signs of fraud.

Ask your investment professional for written materials and prospectuses, and read them before you invest. If you have questions, now is the time to ask.

  • How will the investment make money?

  • How is this investment consistent with my investment goals?

  • What must happen for the investment to increase in value?

  • What are the risks?

  • Where can I get more information?

Finally, it's always a good idea to write down everything your investment professional tells you. Accurate notes will come in handy if ever there's a problem.

What If I Have a Problem?

Some investments make money. Others lose money. That's natural, and that's why you need a diversified portfolio to minimize your risk. But if you lose money because you've been cheated, that's not natural, that's a problem.

Sometimes all it takes is a simple phone call to your investment professional to resolve a problem. Maybe there was an honest mistake that can be corrected. If talking to the investment professional doesn't resolve the problem, talk to the firm's manager, and write a letter to confirm your conversation. If that doesn't lead to a resolution, you may have to initiate legal action. You will need to take action quickly because the legal time limits for doing so can be short. Your local bar association can refer you to attorneys who specialize in securities law.

At the same time, call the SEC and let them know what the problem was. Investor complaints are very important to the SEC, and sometimes we can help you resolve your problems. You may think you're the only one experiencing a problem, but typically, you're not alone. Sometimes it takes only one investor's complaint to trigger an investigation that exposes a bad broker or an illegal scheme. Here's how to contact the SEC:

U.S. Securities & Exchange Commission
Office of Investor Education and Assistance
450 5th Street, NW
Washington, D.C. 20549-0213
Fax: (202) 942-9634