How investors lose billions every year—and how you can avoid it

Most financial advisors and investment firms are honest, hardworking professionals who genuinely want to help their clients succeed. They follow ethical guidelines, provide sound financial advice, and work tirelessly to grow and protect your wealth.

But—as in any industry—bad actors exist.

A small percentage of advisors exploit their clients, scammers prey on unsuspecting investors, and some people lose money simply by neglecting their investments. The result? Billions in losses every year.

🚨 Here’s the shocking truth: In 2023 alone, Americans reported over $10 billion in fraud-related losses. That’s a 14% increase from the previous year!

And get this—investment scams alone cost victims $4.6 billion in 2023. That’s up 21% from 2022.

(Source: Federal Trade Commission)

Want to make sure it doesn’t happen to you? Keep reading. We’re breaking down the most dangerous types of investment fraud, neglect, and financial advisor abuse, how people lose money without realizing it, and what you can do to stay protected.

Investment fraud: the big money pit you don’t see coming

Investment fraud comes in many forms, and scammers are getting smarter. Here are some of the most dangerous schemes:

1. Ponzi schemes (the house of cards scam)

Ponzi schemes promise steady, high returns—but instead of generating profits, they use new investor money to pay earlier investors.

Industry Data:

• In 2023, authorities uncovered 66 Ponzi schemes, marking a seven-year high.

• This is nearly double the amount uncovered in 2021. (ponzitracker.com)

Famous example: Bernie Madoff defrauded thousands of investors out of $65 billion, making it the largest Ponzi scheme in history.

Warning signs:

• “Guaranteed” or too-good-to-be-true returns.

• Little to no documentation about how profits are made.

• Pressure to reinvest instead of cashing out.

2. Pyramid schemes (recruit to get rich—or lose it all)

Pyramid schemes look like business opportunities but rely entirely on recruitment. When new investors stop joining, the scheme collapses—leaving most participants with nothing.

Industry Data:

• In 2017, 0.2% of American adults were victims of pyramid schemes.

How they trick people:

• They promise easy, passive income by recruiting others.

• They require upfront payments to join.

• They often disguise themselves as multi-level marketing (MLM) businesses.

3. Pump and dump (the market manipulation trap)

Scammers artificially inflate a low-value stock by spreading false hype, convincing investors to buy in. Once the price skyrockets, they sell their shares, causing the stock to crash, leaving everyday investors with huge losses.

Industry Data:

• In 2022, 445 individuals or groups accounted for 24% of the 9,902 suspected pump and dump tokens launched, with creators making an estimated $30 million in profits. (chainalysis.com)

How to spot it:

• The stock price rises too fast without solid business growth.

• Promotions come from social media “experts” or email spam.

• The company has no real financials or operations.

(Source: California DFPI)

4. Advance fee fraud (the “pay first” scam)

If someone promises a big return—but only if you send money first, it’s likely a scam.

Industry Data:

• In the UK, recorded cases of advance fee fraud increased from 60,000 to 454,000 over a recent period, marking a significant surge. (infosecurity-magazine.com)

Victims are asked to pay:

• “Investment fees” before receiving returns.

• Taxes or legal costs for funds they’re supposedly receiving.

• Wire transfers that quickly disappear.

Golden rule: Legitimate investments don’t require upfront payments.

5. Cryptocurrency scams (the wild west of fraud)

Crypto has created huge opportunities—but also massive fraud. Scams include:

• Fake crypto exchanges that steal deposits.

• Fraudulent initial coin offerings (ICOs) promising fake projects.

• Phishing attacks that steal investors’ wallets.

Industry Data:

• In 2023, losses from cryptocurrency-related frauds and scams increased by 45% from the previous year, totaling over $5.6 billion. (reuters.com)

Golden rule: Exercise caution and conduct thorough research before investing in cryptocurrencies.

Investment neglect: the money you lose without realizing it

Not all investment losses happen because of fraud. Some happen because people simply don’t pay attention to their portfolios.

1. Bad advice from “professionals”

Not all financial advisors are looking out for you. Some:

• Mismanage funds due to incompetence.

• Recommend high-fee products to earn commissions.

• Ignore client risk tolerance in pursuit of profits.

Industry Data:

• Research indicates that more than 7% of financial advisors were tied to some sort of misconduct between 2005 and 2015. (siepr.stanford.edu)

Warning signs:

• Your advisor pushes high-fee products without clear benefits.

• They disregard your financial goals and risk tolerance.

• You feel pressured to make quick decisions.

2. Ignoring your portfolio (set it and regret it)

Many investors dump money into funds and forget about them, which can lead to:

• Overexposure to risky assets.

• Missed opportunities to rebalance portfolios.

• Unnecessary tax burdens.

(Source: OneAscent)

3. Holding losing investments too long

This is called the "disposition effect"—and it’s a killer. Investors:
👉 Hold onto bad stocks too long hoping they’ll recover.
👉 Sell good stocks too soon out of fear.

(Source: Berkeley Study)

Financial advisor abuse: when the trusted experts betray you

Most advisors are ethical professionals, but some exploit their clients for personal gain. Here are common abuses—fully detailed with additional context and industry data:

1. Churning (excessive trading to generate commissions)

Churning occurs when an advisor excessively buys and sells securities in a client's account to generate commissions, without regard for the client's best interest. The primary goal of churning is to earn higher commissions for the advisor by creating unnecessary trading activity, often causing substantial losses for the investor.

Industry Data:

• A 2021 study showed that 7% of all securities-related complaints in the U.S. were related to churning.

• FINRA estimates that churning costs investors millions of dollars every year due to excessive commissions and fees.

• In 2020, the SEC fined a large firm $10 million for churning activities that affected thousands of clients.

Warning signs:

• High frequency of trades in your account without explanation.

• Significant fees or commissions that don’t align with the performance of your investments.

• Your advisor insists on frequent changes in your portfolio without a clear reason.

2. Reverse churning (charging fees for doing nothing)

Reverse churning happens when an advisor places clients into fee-based accounts but doesn’t actively manage their investments. The advisor still collects fees for management services while making few or no trades. This results in the client paying for a service they aren’t receiving.

Industry Data:

• FINRA reported a 42% rise in reverse churning cases between 2018 and 2020.

• 2020: A major firm was fined $4 million for encouraging clients to switch to fee-based accounts while not providing the expected investment management.

• Fee-based accounts can result in increased costs for clients if the advisor isn't managing the portfolio.

Warning signs:

• Your advisor recommends a fee-based account but doesn’t make regular portfolio adjustments.

• Minimal trading activity in your account, despite paying a high annual fee.

• You’re paying a flat fee, but the advisor is not actively managing your portfolio or providing guidance.

3. Unauthorized trading (buying and selling investments without approval)

Unauthorized trading occurs when an advisor makes trades in your account without obtaining your prior approval. This is a breach of fiduciary duty and can lead to significant losses for the investor, especially when the trades are speculative or high-risk.

Industry Data:

• FINRA reports that unauthorized trading is one of the top three causes of arbitration claims, with over 50% of cases involving unsanctioned trades.

• A 2019 SEC case found that unauthorized trades in client accounts resulted in over $1.8 million in fines and settlements.

• Research shows that unauthorized trading can lead to negative returns averaging 2-4% annually compared to properly managed accounts.

Warning signs:

• You receive trade confirmations for transactions you didn’t approve.

• Your advisor acts defensive when you ask about specific transactions.

• Frequent trades occur without consultation, especially in high-risk areas.

4. Misrepresentation and omission (hiding risks or fees)

Some advisors misrepresent investment opportunities or fail to fully disclose important details about the risks involved. They might exaggerate potential returns or fail to disclose all associated fees, which can lead investors into making decisions that are not in their best interests.

Industry Data:

• A study found that 33% of investors have experienced some form of misrepresentation or failure to disclose risks, fees, or conflicts of interest in their financial dealings.

• In 2018, the SEC fined a prominent investment firm over $1 million for misleading clients about high-risk investments and not fully disclosing hidden fees.

• FINRA estimates that $100 million is lost annually due to undisclosed fees in retirement accounts alone.

Warning signs:

• The advisor exaggerates potential returns without highlighting the risks.

• Investment strategies are presented without a clear understanding of the underlying risks.

• You aren’t provided with detailed disclosures about fees or commissions attached to an investment.

5. Selling proprietary products (conflict of interest investing)

Some advisors push in-house investment products—created and sold by the same firm—because they earn higher commissions, rather than recommending investments that are in the best interest of their clients. These products are often more expensive and may not be the best option for the investor.

Industry Data:

• Studies have shown that proprietary products often come with higher fees and lower performance compared to other options in the market.

• A 2020 survey found that 43% of advisors reported recommending proprietary products to clients even if better options were available.

• In 2019, a leading financial services company was fined $5 million for pushing proprietary products without fully considering the needs of its clients.

Warning signs:

• The advisor consistently recommends proprietary funds without explaining why they are better than other alternatives.

• You’re steered toward high-fee investments that offer no clear benefit over other products.

• The advisor doesn’t present alternatives or seems dismissive of other investment options.

6. Overconcentration (putting too much of your portfolio into one investment)

Overconcentration occurs when an advisor invests a disproportionate amount of your portfolio into a single asset, sector, or stock. This leaves you exposed to the risk of significant losses if that particular investment performs poorly.

Industry Data:

• FINRA warns that overconcentration is a key risk factor in 38% of all investor complaints.

• The 2008 financial crisis saw many investors lose 50-80% of their holdings due to overexposure to real estate or bank stocks.

• Research from Morningstar indicates that diversified portfolios typically perform 10-12% better over a five-year period compared to highly concentrated portfolios.

Warning signs:

• A significant portion of your portfolio is tied to a single stock or sector.

• The advisor is unwilling to diversify or doesn’t seem to take diversification seriously.

• Your investments are overexposed to high-risk assets, especially during market downturns.

7. Misappropriation of funds (outright theft)

The worst offense: outright theft—advisors steal client money through fake investments or unauthorized withdrawals. This is a clear violation of the law and a complete breach of fiduciary duty.

Industry Data:

• FINRA reports that over $30 million is lost each year due to advisors embezzling client funds.

• According to a 2019 report, more than 1,000 financial professionals were barred or suspended for misappropriating client funds.

• In one of the largest cases, an advisor stole $100 million from investors over the course of 20 years before being caught.

Warning signs:

• Your account balances don’t match transaction records or statements.

• You’re unable to access your funds or experience unexplained delays when trying to make withdrawals.

• Your advisor is evasive or secretive when asked about the performance of your investments.

Enhancing Your Financial Control with Truthifi

Integrating Truthifi with a comprehensive Financial Control System can significantly enhance your ability to manage and monitor your investments effectively. Truthifi offers a suite of features designed to provide clarity, organization, and security in your financial management.

Key Features of Truthifi:

• Comprehensive Visualization with the Map: Truthifi's Map feature allows you to visualize your financial landscape by organizing your wealth according to owner, advisor, goal, and more. This customizable view helps you understand the distribution and management of your assets at a glance. (Learn more)

• Detailed Reporting with the Statement: The Statement feature provides in-depth reports on your investments, including performance metrics, fees, and other critical data. These reports are designed to be straightforward and jargon-free, making it easier for you to comprehend your financial situation. (Learn more)

• Advanced Fee Detection: Truthifi detects and scores various fees associated with your investments, such as advisory fees, maintenance fees, fund fees, transaction fees, and commissions. This feature helps you identify and understand the costs impacting your investment returns. (Learn more)

• Advisor-Friendly Tools: By adding your advisor to Truthifi, you can track their fees and achievements, facilitating more informed and productive discussions during meetings. (Learn more)

• Robust Security Measures: Truthifi employs bank-grade security to protect your data, ensuring that your financial information remains safe and private. Your data belongs to you and will never be sold or shared. (Learn more)

By leveraging these features, you can gain a clearer understanding of your financial situation, leading to more informed and effective wealth management.

Final Thought: Take Action Today

Let’s be clear: the vast majority of people, products, and firms on Wall Street are honest, earnest, and hard-working. They genuinely want to help you build and protect your financial future. But bad actors exist, and their actions can cost you millions.

You don’t have to be a victim—but only if you stay vigilant and proactive. The investment world is full of incredible opportunities, but also pitfalls. Protect yourself by staying informed, questioning advice, and actively managing your portfolio. Know the risks, understand your options, and take control of your financial destiny.

Don't let scams, neglect, or advisor abuse destroy your wealth. With the right knowledge, tools, and approach, you can protect yourself and thrive financially.

👉 Stay informed. Stay engaged. Stay protected.

Your financial future depends on it.