2023 marked a new all-time high in consumer fraud. A reported $10 billion was lost in 2023 due to scams highlighting a 14% increase compared to 2022. Reaching this new benchmark has consumers asking the question, “How do I protect myself from investment fraud?” Let’s walk through a few ways the Financial Industry Regulatory Authority (FINRA) helps investors avoid investment scams and protect wealth.
What is FINRA?
With rising fraud cases, FINRA’s role in consumer investments has become increasingly important. FINRA is a not-for-profit organization that helps regulate broker-dealers in the United States. The goal is to protect consumers against bad practices, scams and fraud. Without a cost to taxpayers, FINRA is able to offer protections, education and rule enforcement to investors. The organization aims to ensure:
- Basic Investor Protections
- Vetted Financial Professionals
- Truthful Adverting Practices
- All Financial Products are in the Best Interest of Individuals
How Does FINRA Help?
FINRA holds a multifaceted range of responsibilities to help inform individuals and financial professionals alike. Let’s review some of the important roles FINRA plays in preventing investment scams and fraud in the United States.
Informs Public
One of the most impactful aspects of FINRA is the tool they maintain, BrokerCheck. BrokerCheck is a database of brokers and investment professionals. The database is available to the public to research the experience of brokers, advisers and firms. It helps individuals make informed decisions based on licensing information, employment history and regulation history. Assisting individuals to make educated decisions is the first step toward avoiding fraud.
Stops Financial Crimes
Keeping a close eye on financial institutions allows FINRA to prevent crimes before they begin. FINRA holds the power to ban and take disciplinary actions against those who violate their regulations. In 2023, FINRA brought 610 disciplinary actions against registered brokers. In addition, they referred more than 620 fraud cases to the SEC. By taking these actions, the hope is to stop financial crimes at their source.
Educates Financial Professionals
Another big piece of FINRA’s organization is to educate brokers and other financial professionals. They ensure anyone who sells a securities product is tested, qualified and licensed. These practices ensure individuals are relying on vetted professionals who are equipped to make educated suggestions and execute management techniques. Having well-trained professionals sets the stage for well-informed investors.
What Can You Do to Prevent Scams?
Educating yourself is a great first step in preventing yourself from being a victim of investment scams. Use resources from FINRA to help understand how financial scams happen and how to identify one. FINRA provides multiple resources to empower individuals like free publications, education and checklists to ensure protection. To better identify an investment scam, gather some information on past fraud cases.
Follow along here as these individuals share their stories of investment fraud and how it has affected their lives.
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