The Right Way to Dodge Scams, Plus Learn How Robo-Investing Works

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It seems like you can't go anywhere, whether it's a web page or a store, without encountering some kind of scammer nowadays.

I agree with that.

You can't even go on your phone without encountering a scammer these days, Sean.

It's exhausting, but together we can hopefully fight back at least a little bit.

Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds.

I'm Sean Piles.

And I'm Elizabeth Aiola.

This episode, we're going to answer a listener's question about whether RoboAdvisor accounts are riskier to invest in than traditional brokerage accounts.

But first, we are kicking off a new series called Scam Stories, where we share real stories from folks like you who've experienced a scam, identity theft, or fraud and how they handled it.

We've all gotten those text messages from someone offering a job or an email with an urgent message from our bank that we can only get if we click the link in the email scams are seemingly everywhere and honestly it's all too easy to fall for them my favorite are those random text from scammers that just say hey and like nothing else in there like they're hoping that i strike up a conversation with them but even though scams are everywhere there's still a lot of shame and guilt tied up with actually being scammed so we want to break down this stigma and help people know how to spot and recover from scams and hearing your stories is one of the best ways to do that so this episode, we're going to hear a story about credit card fraud and how scammers are putting a new twist on this classic form of fraud.

Joining us to tell their story is a friend of mine, Scramble Hughes.

Scramble, welcome to Smart Money.

Hey, thanks for having me.

I'm excited to be here.

Scramble, before we get into your scam story, I want to know, and I'm sure the people want to know, how you got the name Scramble.

Yeah, so I'm a circus performer, specifically a juggler, acrobat, and kind of variety entertainer.

And I work mostly in a duo these days.

But when I first started, the first tour I did was with a group in Northern California, and I was part of a clown duo, and we were Ramble and Scramble the Clown.

He was the talker, and I was the mute.

And our goal was to save Lenny the Bigfoot from an evil mercenary trying to collect Lenny's foot for some rich entrepreneur type that wanted to start a museum of Bigfoot's feet.

Naturally, as you do.

Right, exactly.

Yeah, naturally.

I've known you for how many years now?

I've never heard this story.

I feel like I know you in a whole new way.

Yeah.

So that's how it started.

And then I went on a different tour where there was three different Nates.

And so it was natural that everybody just called me.

Nate is your legal name.

So you're my legal name.

Yeah.

So Nate Hughes is my legal name and Scramble James is my performance slash casual name.

It's the name we all know and love you by.

And I must say, if I had to take a wild guess, I would have never guessed that.

The only thing that comes to my mind when I think of Scramble is eggs because I love eggs.

That's most people's first response.

are you an egg enthusiast scramble i do like eggs they got excellent omegas and the cholesterol is actually the good type of cholesterol so and you need that for all your circus performing there you go yeah that's right okay perfect so like i said you experienced credit card fraud which is not nearly as fun as performing in the circus so can you start at the beginning and tell us the story of what happened so it was a dreary night in october uh no it was a fine night

so yeah it was it was a night in October and I was just going about my business.

I had a meeting with my business partner.

And so we were having our business meeting talking about the next convention we were going to.

And we had to book all this stuff and draft these emails to send to people, you know, kind of normal sales kind of business stuff, which is half of running a circus business.

All of a sudden, I got a text message.

from my bank that I luckily saw right away.

And I was like, oh, fraudulent purchase.

And then I was like, oh, I maybe have to deal with this.

And then all of a sudden, I got vibration after vibration after vibration.

And I had 30, 40, 50, 60 text messages rolling in.

And I was like, oh my God, what is happening?

And they were from like totally random sources and entities and people.

It wasn't just like, hey, it was like, thanks for signing up to our Pilates gym.

Thanks for signing up to our equestrian ranch service center.

It was like so random.

Random, like the most random.

And like most of them were in English, some of them were in Spanish.

And so I told my business partner, I was like, I got to get off the phone and figure this out.

And so there was, of course, a link in the text message that the bank sent me to follow, but I was pretty skeptical of that due to all the other messages I had received.

Smart.

So I went onto my computer just very briefly to check, did I I get an email from my bank?

And I found out I had like over a thousand emails in one of my email accounts.

That must have been overwhelming.

Yeah.

I just immediately was like, cool, number on the back of the credit card.

I am calling this now.

Yes.

I'm not clicking or touching anything.

The wise thing to do, go straight to the source.

Yeah.

Don't click any links.

Yeah.

But I was definitely like.

freaking out a little bit, Elizabeth.

I was like, oh my God.

I would be.

A thousand emails.

Where do you start?

They were coming in like that.

It was like the number was actively going up as I was just like on.

And these are from different sources, right?

Yeah.

And like the emails were a broader spectrum of origins.

So like there was like Asiatic language sub subjects and like German and Spanish and like some French and of course English.

It was kind of like, I was like, wow.

I just had my information sold to the entire world.

But so I called my bank right away because I'm like, first off, I got to deal with this credit card thing and then I can try to process how to do the rest of this.

So I call my bank,

you know, that's the kind of the normal stuff you connect with the fraud department and, you know, she's verifying my identity, which I was actually like, kind of like, man, all I had to do was give her my name, my birthday, and my address.

If I had somebody's license, that I would have all of that stuff.

Right.

It's almost too easy.

This maybe needs to be updated a little bit.

I'm sure sure they could tell that it was you calling, but we know that people can spoof the numbers that they're calling from.

Right.

So that may bypass any verification measures that they have too.

Yeah.

So banks, if you're out there, try to figure out something a little better.

So what did the person say when you were talking to them?

They obviously were like, we're sorry, which transactions?

And they were all the transactions were from TikTok shops.

So I was like, oh, it's those.

transactions.

And then they kind of were like, okay, well, we'll review these.

Let me put you on hold.

I'll check with whatever team or person she needs to check with or process that they had to go through on the other line.

They put me on hold.

And then when they come back from hold, they're like, hey, did you authorize anyone to use your credit card?

And I was like, no,

definitely not.

And they were like, oh, we have someone talking to another agent that is saying that you have authorized that.

What?

And they're on the line right now.

And I was like, that is the person who is trying to steal from me.

Get them off the line.

Yeah, like, that is not real.

I can't believe that.

That is just the wildest thing.

You were on the phone trying to resolve this as the scammers were trying to resolve it in their own way, too, to make sure these purchases went through.

Yeah.

And you called like that.

You called instantly.

Instantly.

Yeah.

Cause they probably had a couple transactions went through.

And I imagine they had more lined up and one of them got blocked.

And then they were trying to say, oh, you shouldn't be blocking this transaction, right?

In whatever way.

As if TikTok shop wasn't sketchy enough.

I know.

Yeah.

Yeah.

You know, I'm just curious what they bought.

You know, it was like a couple hundred bucks.

And I'm like, man, did they buy like a cool massage gun?

Or like, was it at least something?

It was the most random stuff.

Oh my goodness.

I'm not a huge six, but when I scroll TikTok, I see things that I could have never perceived would exist in the world.

So it could be anything.

Right.

You know, was it some giant.

water balloon filler for like industrial purposes or something?

I don't know.

We'll never know.

So did you get any pushback when you said that you didn't have anyone authorized to use your card?

Or what was that conversation?

The agent was actually very accepting of that.

They just were like, okay, you're sure?

And I said, yes, I'm sure no one's authorized.

And then they basically said, okay, let me put you on hold again.

When they came back, they were like, okay, yeah, we got you.

We'll investigate this.

We can't refund your money right now, but give us seven to 10 business days and we'll let you know, basically.

And you did get the money back.

Yes, it did take

around the maximum amount of time to get the money back.

How long was that?

Can you remember?

Seven to ten business days.

But it was odd.

They completely removed the account from my online banking portal in that time.

So like it just completely disappeared.

So you couldn't see your balance or anything.

At all.

Yeah.

I couldn't.

It was just gone.

And so when that happened, I did call them and was like, hey, is this okay?

Because I was like, am I being robbed at some?

Like, I was like, is something else happening?

Yeah.

And also, this was your business card, right?

So you probably couldn't conduct your business transactions as you normally would, given that it was taken out of your online portal.

Yes.

So I got a new credit card.

They refunded me money and they sent me the new credit card, which I activated and started using.

But after a couple of weeks, there was more fraudulent purchases on that card.

And it turned out that the bank had sent me a card with the same card number.

And so somehow the people that had the card information were able to still use it.

So then I had to kind of restart the process and tell the bank which the ones were the fraud purchases and this and that.

And so I was refunded for those as well.

And then the bank finally sent me a totally brand new card with totally different number and everything like that.

And then that card has been working just fine.

I just want to ask Granpo how you were feeling because I know when lots of people get scammed, they sometimes feel feelings of shame or embarrassment.

So how were you feeling when all this craziness was happening?

In the moment, I don't want to say panic because I was like, I do feel like I was relatively measured and focused.

I was like, I will not have these people steal my money.

You know, like it was like I was determined.

Circumstantially in that moment, it was really hard and overwhelming.

But when I get focused, I kind of like enter a tunnel that no outside.

forces can enter for a little while.

I've had my information stolen before.

So this isn't my first rodeo, I guess.

So I didn't necessarily feel shameful about it.

I can identify with someone feeling that way for sure.

I mostly felt relieved that I had acted quickly and not engaged in any of the content that was sent to me other than what the bank had told me to do.

And just like right away done that and not tried to go through any of the emails or text messages and just call it the number on the card.

And that's the essential thing to do because so many people, they may get that text message or the phone call from purportedly their bank.

And it's actually the scammer contact and then through text or phone call.

So you did the right thing calling that number on the back of your card.

Do you know how they got your card information, let alone your email and email address?

I believe that they got my card information through a corrupted or hacked credit card reader.

I think it's either that or they had RFID scanner because I had basically traveled from Portland, Oregon, where I live to South Central California for this fair, the contract I was working.

And so I used the card along the way.

I used it at the fair and I used it back.

And then it was the week after I had gotten back on like a Tuesday or Wednesday that this happened.

And I hadn't really made any online purchases at that point.

And then what was weird about the email is that the email that they got was not linked to the card in any way.

I believe what they did is they like saw the name on the card and then like looked for my website off of that name.

Wow.

Because the email that they got was my performance email for my solo juggling that they could find if they found my website.

But that email has no link through my bank to the credit card or through the credit card provider to me at all.

That is fascinating.

You're not still getting all these text messages and emails.

The text messages have slowed down.

The way that I dealt with that was I actually had to block each individual contact because the report junk feature on your iPhone, if you have an iPhone, doesn't actually ban or like stop contact from that person like you would think reporting junk in your email does, for example.

Over time, it took me like maybe a month and a half, two months, but I eventually got every one of these spam numbers blocked.

Now I just have a normal amount of text message spam that say like, hey, or like, our recruiting service has found you.

You know, like that kind of stuff.

Scramble, it sounds like you are pretty cognizant of steps to take when you are in a situation where you've been scammed.

Is there anything new that you've learned from this experience in terms of maybe how to prevent a scam or what to do when you do encounter a scam?

Yeah, I think it confirmed a couple of things.

I used my credit card, which has some fraud and theft guarantees on it.

So that process I feel like was made a little easier because I wasn't using a debit card.

The thing that I did that I learned a little bit about was doing credit freezes.

So after I had called and everything like that, I checked my other accounts that I have and I was a little worried about all of that.

So I went to the three credit bureaus, Experian, Trans Union, and Equifax.

There you go.

Ding, ding, ding.

And so I did the credit freezes on all of those.

And some of them, the thing that I learned is that they have temporary credit freezes too.

So on the ones that allowed that, I did like a month of credit freezing just so that

have an immediate block and then it would, it would alert me when my credit was being unfrozen, basically.

Well, the good thing that folks should know is that freezing your credit is really easy, about as easy as you mentioned it was, Scramble.

And I keep my credit frozen all the time, actually.

And I only thought when I think I'm going to apply for a new line of credit, everyone should assume that their social security number is floating out there on the internet somewhere.

And it, as you pointed out, can be really easy to try to do something fraudulent with your information so I think that's like a pretty simple step for everyone to take to just try to stop what fraud they can so look into it it would take you maybe 30 minutes to do at each of the three bureaus and that way you can stay safe long term and then again thought next time you need to use your credit stop scammers in the interim It can also be helpful, I think, as a parting tip to be mindful or aware of the different scams that are out there because these scammers are very innovative and they're always coming up with new things.

So just keeping your eye out for the scams that are out there can help you be mindful in case that scam is coming your way.

And Scramble, do you have any parting words of wisdom you want to leave our listeners with?

Don't panic.

Try to do the most logical basic step that you can think of because they are going to try to overwhelm you in a lot of situations and induce panic, which often creates a decision that you may not make in a...

normal or calm headspace.

So just try to work your way through that, take a couple breaths, and then do the baseline response first.

Scramble, thank you for coming on and sharing your story.

Yeah, of course.

Thanks for having me.

And if you folks out there listening have an experience with a scam that you would like to share with us, let us know.

Leave us a voicemail or text us on the nerd hotline at 901-730-6373.

That's 901-730-NERD, or email us at podcast at nerdwallet.com.

And again, sharing stories can be one of the best ways to fight back against the scammers.

So let's hear what you got.

We're about to get to this episode's money question segment where we go into whether RoboAdvisor accounts are any riskier than traditional brokerage accounts.

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That's up next.

Stay with us.

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We are back with a capital B and answering your money questions to help you make smarter financial decisions.

This episode's question comes from Ryan, who lives in San Francisco.

Here it goes, as read by our producer, Extraordinaire, Tess Wiglund.

In a show in November 2024, you discussed the safety of neobanks compared to traditional banks.

You highlighted the increased risks associated with neobanks over traditional FDIC-insured banks.

For instance, if a neobank fails or declares bankruptcy, there's a chance you won't receive your savings back.

In contrast, savings in an FDIC-insured traditional bank are guaranteed up to a certain limit.

I have similar questions about robo-advising platforms like Acorns and Wealthfront versus traditional brokerage accounts offered by Schwab and other institutions.

I currently have stock market investments in a robo-advised Acorns account, and I own ETFs in a traditional Schwab account.

If either of these institutions were to fail or declare bankruptcy, would I still be guaranteed to own my investments?

I thoroughly enjoy your show and make sure to never miss an episode.

Thanks.

Ryan from San Francisco.

To help us answer Ryan's question on this episode of the podcast, we are joined by investing nerd Bella Aviva.

Welcome back to Smart Money, Bella.

Thanks.

I'm happy to be here.

Hey, Bella.

So our listener, Ryan, is wondering about the safety or security of using a Robo-Advisor platform like Acorns or Wealthfront and how that compares with investing in a traditional brokerage account at somewhere like Schwab or Fidelity.

And there's a lot to untangle in that question.

First, we should point out that many of the traditional places to invest, like Schwab or Fidelity, offer Robo-Advisor accounts.

And a Robo-Advisor account just refers to how the account is managed, as in by a robot instead of by a person.

So I think Ryan is really asking two questions that are maybe a little bit mixed up.

One is, is investing in an exchange-traded fund or ETF in a robo-advisor account riskier than investing in an ETF in a traditional brokerage account?

And two, are newer institutions like Acorns or Wealthfront riskier than the more established places to invest?

So let's take these one at a time.

First, Bella, are there any specific unique risks associated with investing in an account that's managed by a Robo-Advisor?

Robo-Advisors are generally a safe option, in my opinion.

When you invest with a Robo-Advisor, you'll take a survey that takes into account things like your risk tolerance, your goals, and more.

And then from there, it'll build a portfolio that aligns with your preferences, typically made up of ETFs and index funds.

Most robo-advisors will also offer rebalancing, which means your portfolio shouldn't stray too far from its original asset allocation.

So that means, for example, if you wanted a lower risk portfolio, it wouldn't let the portion invested in stocks get too high.

Some robos may also offer something called tax loss harvesting, which is selling certain investments when they're down down to offset other investment gains, which can reduce your risk of owing more than you expected at tax time.

So all in all, there aren't any unique risks associated with Robo-Advisors.

What about investing in something like an exchange traded fund within a traditional brokerage account?

Are there any specific risks there?

Whether you invest in an ETF through a robo-advisor or the same ETF through a brokerage account, you're exposed to the same level of risk.

I think about it more in terms of convenience.

Compared with a robo-advisor, which, like I I mentioned, builds a portfolio for you, you'll need to do some extra legwork in terms of research to make sure you pick an ETF that has historically performed well and aligns well with your investment strategy.

And then another thing to consider is diversification.

Investing in one single ETF likely won't offer you the same level of diversification that a robo-advisor offers.

You generally need to invest in a range of assets to achieve a well-diversified portfolio, and a robo automatically does that for you.

But for example, if you were to invest in a single tech ETF and the tech industry has a bad year, that'll definitely be reflected in your investment.

Underlying all of this is the fact that there is always risk when investing and there are many different types of risk, in fact, including the risk of losing your principal, which is the amount that you initially put in.

Can you outline the role of risk in investing and how folks should think about it?

You're right.

All investing comes with risks, but not all investing comes with the same level of risk.

There are risky investments like crypto, and then more stable investments like bonds, and then a bunch in between.

So you have some flexibility when it comes to how much risk you're exposed to.

A big thing to consider is when you'll need the money you've invested.

If you're saving for retirement and you're in your 20s, your portfolio will likely have more exposure to riskier assets like stocks than someone who's, say, 60.

On the other hand, if you're investing for a short-term goal, you likely want to pick less volatile investments since your portfolio may not have time to recover from losses in a shorter time period.

And I'll add that generally, the riskier the investment, the greater potential return you may get, which is often why folks in their 20s will invest more heavily in stocks, which can be riskier than bonds, because you want that additional growth since you have so much time until your retirement.

But again, the potential greater return is a big if because you could lose it all too.

And that's the trade-off of investing.

If you want to earn more, you have to be willing to lose more too.

Let's turn to the second part of Ryan's question now, the part about institutions.

Bella, are there any specific risks to using one of these newer investing platforms?

Generally, no.

Wealthfront and Acorns are safe choices.

Financial institutions have to have certain cybersecurity guardrails in place thanks to FTC requirements.

So your personal information should be safe no matter who you invest with.

When I think about picking a brokerage account, I'm thinking about things like fees, account minimum, which investments they offer, and how easy their platform is to to use.

But with all that said, it's definitely best to be cautious about new platforms that pop up and not make any assumptions about their safety.

One thing I want to add is that if a brokerage fails, investors are protected up to a certain limit.

This is kind of like FDIC insurance, but for brokerages.

And I don't think a lot of folks know about this.

So Bella, can you give us a rundown of this little known protection called SIPIC?

I think that's a great analogy.

While FDIC insurance covers losses in bank accounts, the Securities Investor Protection Corp, or SIPIC, is a similar concept for brokerage accounts.

SIPIC covers up to $500,000 in securities.

So those are things like stocks or bonds, and up to $250,000 in cash.

And does this apply to newer places to invest like the ones Ryan mentioned?

Yeah, according to SIPIC, all registered brokers or dealers are SIPIC members by law with very few exceptions.

So whether you choose a lesser-known brokerage or one that's more of a household name, up to $500,000 in securities will be covered.

Of course, it's much less likely that a big name broker would go under.

So if you're looking to invest more than that $500,000 cap, it could make sense to invest somewhere with a history of financial stability.

Some big brokerages like Fidelity also offer customers excess of SIPIC insurance, which ensures assets above that regular SIPIC limit.

And something I really want to underline here is that SIPIC protects you from if a brokerage fails, not you losing money due to the ups and downs of investments, which we outlined earlier.

Okay.

Well, Bella and Elizabeth, something I'm thinking about here too is that a lot of folks might still remember when the cryptocurrency exchange FTX failed a few years back.

People lost money from that event, but that was a pretty different story from what our listener, Ryan, is asking about, right?

Right.

That's because crypto isn't regulated the same way that other investments are, and it isn't protected by SIPIC.

That's one of the reasons it's considered a risky investment.

FTX is definitely a unique case because the company allegedly made false claims that users' investments were FDIC insured, which potentially gave people a false sense of security.

While about 98% of customers are set to get their money back through a repayment plan, albeit years later, it's a reminder to carefully assess how much risk you're willing to take on and take time to research how your assets are protected in an investment account.

Both the FDIC and SIPIC have search tools on their websites to look up a company's membership status, which can be a good place to start.

Bella, do you have any other thoughts you want to leave those worried about the security and risks of investing in platforms, both old and new?

I think it's definitely smart to do your due diligence when it comes to looking into a company's security measures or insurance coverage, but don't let it be the only thing you focus on.

A key thing you want to look at is how a brokerage account or Robo compares with other similar companies to make sure you're getting the best deal and that it serves your specific investing needs.

Great.

Well, Bella, thank you for coming on and talking with us.

Thanks for having me.

That's it for this episode.

Remember, listener, that we are here to answer your money questions.

So turn to the nerds, call or text us your questions at 901-730-6373.

That's 901-730-NERD.

You could also shoot us an email at podcast at nerdwallet.com.

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This nerdy information is provided for general educational and entertainment purposes, and it might not apply to your specific circumstances.

This episode was produced by Tess Swigland, Hilary Georgie helped with editing, Nick Charistomy mixed our audio, and we want to give a huge thank you to Nerd Wallet's editors for all the ways they help us.

And with that said, until next time, turn to the nerds.