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At least 7 percent of financial advisers have committed fraud. Has yours?
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A new study shows that many financial planners remain in the industry after financial misconduct. Here's how you can find out about your financial adviser's history and prevent fraud. - photo by Sam Turner
If you pay someone to manage your investments, you may want to check out their credentials.

While most financial advisers are honest, around 7 percent have been involved in a fraud or other misconduct, a new study suggests.

Frontline reports that a new working paper by professors from the University of Chicago and the University of Minnesota says that 44 percent of financial advisers found guilty of misconduct are back to work within a year.

And that's not all. The study shows that past offenders are five times more likely to commit fraud.

According to Frontline, these instances of financial misconduct often include "putting a client in unsuitable investments, misrepresenting or omitting key facts, 'excessive trading,' negligence, or trading on a clients account without his or her permission."

Here are some steps you can take on your own to look into your financial adviser's background and make sure you're not getting ripped off.

Know how your advisor makes his money

Most cases of financial misconduct are related to your adviser's motivation, and how your adviser is paid has a lot to do with that.

One thing you want to watch for is whether your adviser makes commissions on selling certain investments. Commissions may mean that the adviser has his own interests in mind when making a financial plan, especially if he is not transparent about them.

"Commissions are not bad as long as all fees are clear and out in the open if you request them to be," says Investopedia.

MarketRiders founder and CEO Mitch Tuchman recommends getting all the fees out in the open so you know exactly what you're paying.

"My friend had a $6 million account with one of the largest Wall Street firms," Tuchman wrote for U.S. News. "I calculated his mutual fund fees, loads, and extra costs. Last year he paid about $138,000! We switched his portfolio to low-cost index funds and now he pays $18,000 per year."

Tuchman also recommends paying your advisor by check rather than letting your advisor pay himself from your account (which most advisers do). By receiving an invoice, you will know exactly where your money is going.

Ask for certifications

Asking for certifications has two purposes: it will tell you how experienced your financial adviser really is and whether she should be managing your money. And it will allow you to find out whether your adviser has been guilty of misconduct in the past.

The key titles are Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Chartered Financial Consultant (ChFC). These credentials can easily be verified online. For example, if your financial planner claims to be a CFP, just visit the CFP Board's website and enter her name and company.

You also want to see if your adviser is registered with the Financial Industry Regulatory Authority or the U.S. Securities and Exchange Commission.

This is the key to finding out if your advisor has a history of fraud. If she isn't registered, that could be a red flag.

From FINRA's website, go to "BrokerCheck" and enter your adviser's details. You will be able to see both your adviser's certifications and how long she's been working in the securities industry.

Most importantly, you'll see if your adviser has had any "disclosures." Disclosures can include anything from customer complaints to civil and criminal proceedings.

Ask about fiduciary responsibility

Fiduciary responsibility means that your adviser is iobligated to act in your best interest, not his own. MarketWatch suggests getting a written agreement of fiduciary responsibility.

According to Frontline, under current law, advisers only have to meet what's called the "suitability standard." This means they can act in their own best interest as long as they technically meet their clients' needs.

The U.S. Department of Labor has recently proposed a fiduciary rule that would increase the standard for financial planners. But House Speaker Paul Ryan criticized the rule, saying that its "one-size-fits-all" nature would increase costs and limit access, reports ThinkAdvisor.

What if you find out your adviser has a history of fraud?

Because 38 percent of fraudsters are repeat offenders, you're probably best-off looking for a new financial adviser.

In some cases you may want to stay with your adviser if you have a long history of trust, or if the past offenses were minor but go ahead with caution.

You should also know that fraudsters often work at firms where financial misconduct is prevalent. The most common victims of fraud are the elderly and people who are "less financially sophisticated," says Frontline.

If you think an individual or a firm is currently involved in financial misconduct, FINRA has a hotline where you can report it.