More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Financial Industry Regulatory Authority warned investors Wednesday to be wary of promotions touting certificates of deposit that promise interest rates that are substantially higher than current averages, and provided investors with a list of “red flags” that indicate a CD offer may be fraudulent.
In an investors alert, High-Yield CDs: Red Flags That Signal a Scam, FINRA notes an instance of suspected email fraud, in which the pitch appeared to come from a large U.S. bank that supposedly was promoting a CD offered by an international banking partner.
At a time when most CDs at U.S. banks and credit unions were offering just over 1% for a comparable term, this pitch offered a CD with a 15% yield, and contained instructions on how to wire funds, FINRA said.
“Savers continue to face near-historic low yields on traditional bank products,” said Gerri Walsh, FINRA’s senior vice president for Investor Education. “Fraudsters attempt to take advantage of investor desire for higher yields by luring them into potentially fraudulent CDs that promise both safety and double-digit returns.”
The alert provides a list of red flags that would likely indicate a CD offer may be fraudulent, including:
--interest rates that are significantly higher than average;
--emails with addresses that are not originated and sent by the financial institution that is cited in the promotion;
--emails that contain misspellings or grammatical errors;
--promotions that claim to be from a U.S. financial institution that has aligned with an international bank;
--promotions that claim to be for a “limited time only”; and
--promotions that claim to be directed at “best customers” and that require extremely high minimum investments (for example, $100,000).
The alert advises investors who believe they have been a victim of a CD scam to contact their financial institution immediately to report a loss or theft of funds through an electronic funds transfer.
Check out IRS’ Top 12 Tax Scams: 2014’s Dirty Dozen on ThinkAdvisor.