The Right Way to Respond to Fraud, Plus Learn How Robo-Investing Works

Summary

NerdWallet's Smart Money Podcast: Episode Summary

Title: The Right Way to Respond to Fraud, Plus Learn How Robo-Investing Works
Release Date: July 28, 2025
Hosts: Sean Pyles, CFP®, Elizabeth Ayoola
Guest: Scramble Hughes, Bella Aviva

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Introduction to Scam Stories

The episode begins with hosts Sean Pyles and Elizabeth Ayoola introducing a new series titled "Scam Stories." This series aims to shed light on real-life experiences of scams, identity theft, and fraud, fostering a community where listeners can share and learn from each other's experiences.

Elizabeth Ayoola emphasizes the ubiquity of scams in today's digital age:

"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." ([01:25])

Scramble Hughes Shares His Experience with Credit Card Fraud

The centerpiece of this episode is a compelling story from Scramble Hughes, a circus performer who encountered a sophisticated credit card fraud scheme.

Background:
Scramble begins by sharing his unique stage name origin, revealing his background as a juggler and acrobat:

"I'm Nate Hughes, Scramble James is my performance slash casual name." ([03:52])

The Fraud Incident:
On a seemingly ordinary night in October, Scramble detects unauthorized activities on his credit card. He receives a barrage of suspicious text messages and an overwhelming influx of fraudulent emails from diverse sources and languages.

"It was like I was, I was like, wow, I just had my information sold to the entire world." ([06:24])

Immediate Response:
Understanding the gravity of the situation, Scramble takes swift action by contacting his bank directly, avoiding any links provided in the suspicious messages.

"I'm not clicking or touching anything." ([06:05])

Complications with the Bank:
Despite his prompt actions, Scramble faces challenges as the fraud persists even after receiving a new card. The bank inadvertently issues a card with the same number, allowing scammers continued access.

"Somehow the people that had the card information were able to still use it." ([10:07])

Resolution and Aftermath:
After multiple interactions and continuous fraud attempts, Scramble finally receives a completely new card, ending the cycle of unauthorized transactions. He also takes proactive measures by freezing his credit with all three major credit bureaus.

"Freezing your credit is really easy... It would take you maybe 30 minutes to do at each of the three bureaus." ([15:08])

Emotional Impact:
Throughout the ordeal, Scramble maintains composure, focusing on logical steps to mitigate the fraud rather than succumbing to panic or shame.

"Don't panic. Try to do the most logical basic step that you can think of..." ([16:28])

Insights and Lessons on Handling Fraud

Scramble's story underscores the importance of:

• Immediate Action: Quickly contacting financial institutions upon detecting fraud.
• Vigilance: Regularly monitoring accounts and being cautious of suspicious communications.
• Credit Freezes: Utilizing credit freezes to protect against further unauthorized access.
• Staying Calm: Maintaining composure to make rational decisions during stressful times.

Listener’s Money Question: Robo Advisors vs. Traditional Brokerage Accounts

Transitioning from fraud prevention, the podcast delves into a listener-submitted question from Ryan in San Francisco, addressing the safety and risk comparison between Robo Advisors (like Acorns and Wealthfront) and traditional brokerage accounts (such as Schwab).

Ryan’s Question Highlights:

1. Risk of Robo Advisors vs. Traditional Accounts:
   Ryan is curious whether Robo Advisor platforms are inherently riskier than traditional brokerage accounts, particularly in scenarios where the institution might fail or declare bankruptcy.

2. Protection of Investments:
   He seeks clarity on the assurance of owning investments in both settings should the financial institution face insolvency.

Expert Analysis by Bella Aviva:

Understanding Robo Advisors:
Bella explains that Robo Advisors are generally safe, offering portfolios tailored to individual risk tolerance and goals through ETFs and index funds. Features like automated rebalancing and tax-loss harvesting add to their appeal without introducing unique risks.

"There aren't any unique risks associated with Robo advisors." ([22:38])

Comparison with Traditional Brokerage Accounts:
Investing in ETFs via Robo Advisors or traditional brokerage accounts exposes investors to similar market risks. The primary difference lies in the level of convenience and the hands-on management required by traditional accounts.

"If you're saving for retirement and you're in your 20s, your portfolio will likely have more exposure to riskier assets like stocks..." ([24:24])

Institutional Safety - SIPC Protection:
Bella clarifies that both Robo Advisors and traditional brokerages are protected under the Securities Investor Protection Corporation (SIPC), which safeguards up to $500,000 in securities and $250,000 in cash per account.

"SIPC covers up to $500,000 in securities... which can make sense to invest somewhere with a history of financial stability." ([26:40])

Distinguishing from Unregulated Platforms:
Bella notes that unlike regulated brokerage accounts, platforms like cryptocurrency exchanges (e.g., FTX) lack SIPC protection, highlighting the importance of understanding the regulatory environment of investment platforms.

"Crypto isn't regulated the same way that other investments are. And it isn't protected by SIPC." ([28:06])

Final Recommendations:

• Due Diligence: Always research the security measures and insurance coverage of investment platforms.
• Diversification: Utilize tools like Robo Advisors for automated diversification to mitigate risks.
• Understand Protections: Familiarize oneself with SIPC and FDIC protections to ensure investments are adequately safeguarded.

Conclusion and Takeaways

This episode of NerdWallet's Smart Money Podcast provides invaluable insights into both protecting oneself from financial fraud and making informed decisions regarding investment platforms. Scramble Hughes' personal experience with credit card fraud serves as a cautionary tale, emphasizing the importance of swift action and proactive measures. Meanwhile, Bella Aviva's expert advice demystifies the complexities surrounding Robo Advisors and traditional brokerage accounts, reassuring listeners of their safety when proper protections are in place.

Key Takeaways:

1. Stay Informed and Vigilant: Regularly monitor financial accounts and be wary of suspicious communications.
2. Act Promptly in Case of Fraud: Immediate contact with financial institutions can mitigate the impact of unauthorized transactions.
3. Leverage Protection Mechanisms: Utilize credit freezes and understand institutional protections like SIPC to safeguard investments.
4. Choose Investment Platforms Wisely: Whether opting for Robo Advisors or traditional brokerages, ensure they are reputable and understand the protections they offer.

By blending real-life experiences with expert financial advice, this episode empowers listeners to navigate both the threats of financial fraud and the complexities of modern investment strategies with confidence and knowledge.

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Notable Quotes:

• Elizabeth Ayoola ([01:25]): "Scams are seemingly everywhere, and honestly, it's all too easy to fall for them."
• Scramble Hughes ([16:28]): "Don't panic. Try to do the most logical basic step that you can think of..."
• Bella Aviva ([22:38]): "There aren't any unique risks associated with Robo advisors."
• Sean Pyles ([26:40]): "SIPC protects you from if a brokerage fails, not you losing money due to the ups and downs of investments."

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Additional Resources:

• Credit Freezes: Learn how to place a credit freeze with Experian, TransUnion, and Equifax.
• SIPC Information: Visit the SIPC website to verify brokerage memberships and understand coverage limits.
• Listener Questions: Submit your financial queries via voicemail at 901-730-6373 or email at [e-mail].

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This summary captures the essence of the episode, highlighting the key discussions on fraud prevention and investment safety, enriched with direct quotes and structured for clarity and engagement.

Transcript

[Sean Pyles]

Today's episode is sponsored by Dell. Let's talk about the new Dell AI PC. Powered by the Intel Core Ultra processor. It's not just an AI computer. It's a computer built for AI. That means it's built to help do your busy work for you. So you can fast forward through editing images, designing presentations, generating code, debugging code, categorizing your financial transactions, running lots of apps without lag, creating live translations and captions, summarizing, meeting notes, extending battery life, enhancing security, finding that file you are looking for, organizing your receipts, managing your schedule, meeting your deadlines, drafting financial summaries, responding to Cody's long emails, leaving all the time in the world for more you time and the things that you actually want to do. No offense, Cody. Get A new Dell AI PC starting at [e-mail] AI PC that's Dell.com AI PC. How those ahead? Stay ahead. It seems like you can't go anywhere, whether it's a webpage or a store, without encountering some kind of scammer nowadays.

[Elizabeth Ayola]

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

[Sean Pyles]

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 Pyles.

[Elizabeth Ayola]

And I'm Elizabeth Ayola. This episode we're gonna answer listeners question about whether Robo Advisor accounts are riskier to invest in than traditional brokerage accounts.

[Sean Pyles]

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.

[Elizabeth Ayola]

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.

[Sean Pyles]

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.

[Scramble Hughes]

Hey, thanks for having me. I'm excited to be here, Scramble.

[Elizabeth Ayola]

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.

[Scramble Hughes]

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.

[Sean Pyles]

As you do, Right?

[Scramble Hughes]

Exactly. Yeah, naturally.

[Sean Pyles]

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.

[Scramble Hughes]

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.

[Sean Pyles]

Just called Nate is your legal name.

[Scramble Hughes]

So you just Scramble. Legal name. Yeah. So Nate Hughes is my legal name, and Scramble James is my performance slash casual name.

[Sean Pyles]

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

[Elizabeth Ayola]

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.

[Scramble Hughes]

But that's most people's first response.

[Sean Pyles]

Are you an egg enthusiast, Scramble?

[Scramble Hughes]

I do like eggs. They got excellent omegas. And the cholesterol is actually the good type of cholesterol, so.

[Sean Pyles]

And you need that for all your circus performing. There you go.

[Scramble Hughes]

Yeah, that's right.

[Sean Pyles]

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?

[Scramble Hughes]

So it was a dreary night in October. Uh, no, it was a fine night.

[Sean Pyles]

Yeah. Set the stage for it.

[Scramble Hughes]

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, like, like, like the most random. And like, most of them were in English, some of them were in Spanish. And so I. I told my business partner, I was like, I gotta 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.

[Sean Pyles]

Smart.

[Scramble Hughes]

So I went onto my computer, just very briefly to check did I get an email from my bank? And I found out I had like over a thousand emails in one of my email accounts.

[Elizabeth Ayola]

That must have been overwhelming.

[Scramble Hughes]

Yeah. I just immediately was like, cool number on the back of the credit card. I am calling this now.

[Sean Pyles]

Yes.

[Scramble Hughes]

I'm not clicking or touching anything.

[Sean Pyles]

The wise thing to do. Go straight to the source.

[Scramble Hughes]

Yeah.

[Sean Pyles]

Don't click any links.

[Scramble Hughes]

Yeah. But I was definitely, like, freaking out a little bit, Elizabeth. I was like, oh, my God, I would be.

[Elizabeth Ayola]

A thousand emails. Where do you start?

[Scramble Hughes]

They were coming in like that. It was like the number was actively going up as I was just like, on.

[Elizabeth Ayola]

And these are from different sources, right?

[Scramble Hughes]

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. I was like, wow, I just had my information sold to the entire world. Oh, no.

[Elizabeth Ayola]

Yeah.

[Scramble Hughes]

But so I called my bank right away. Cause I'm like, first off, I gotta 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.

[Sean Pyles]

Right. It's almost too easy.

[Scramble Hughes]

This maybe needs to be updated a little bit.

[Sean Pyles]

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

[Scramble Hughes]

Right.

[Sean Pyles]

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

[Scramble Hughes]

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

[Sean Pyles]

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

[Scramble Hughes]

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.

[Bella Aviva]

What?

[Scramble Hughes]

And they're on the line right now. And I was like, that is the person who is trying to steal from me.

[Elizabeth Ayola]

Get them off the line.

[Scramble Hughes]

Yeah. Like, that is not real. I don't believe that.

[Sean Pyles]

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.

[Scramble Hughes]

Yeah.

[Sean Pyles]

And you called like that. You called instantly.

[Scramble Hughes]

Instantly, yeah. Because they probably 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.

[Sean Pyles]

As if TikTok shop wasn't sketchy enough.

[Elizabeth Ayola]

I know.

[Scramble Hughes]

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.

[Elizabeth Ayola]

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 could be anything, Right?

[Scramble Hughes]

You know, was it some giant water balloon filler for, like, industrial purposes or something?

[Elizabeth Ayola]

We'll never know.

[Sean Pyles]

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

[Scramble Hughes]

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. It will 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.

[Sean Pyles]

And you did get the money back?

[Scramble Hughes]

Yes, it did take around the maximum amount of time to get the money back.

[Elizabeth Ayola]

How long was that? Can you remember?

[Scramble Hughes]

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.

[Elizabeth Ayola]

So you couldn't see your balance or anything at all?

[Scramble Hughes]

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 something else happening.

[Sean Pyles]

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.

[Scramble Hughes]

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 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.

[Elizabeth Ayola]

I just want to ask Grandbull 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?

[Scramble Hughes]

I don't want to say panic because I was. 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 the number on the card.

[Sean Pyles]

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?

[Scramble Hughes]

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.

[Sean Pyles]

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

[Scramble Hughes]

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, yes, of course.

[Elizabeth Ayola]

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?

[Scramble Hughes]

Yeah, I think it confirmed a couple 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.

[Sean Pyles]

There you go. Ding, ding, ding.

[Scramble Hughes]

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

[Sean Pyles]

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 a, 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.

[Elizabeth Ayola]

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.

[Sean Pyles]

And scramble. Do you have any parting words of wisdom you want to leave our listeners with?

[Scramble Hughes]

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.

[Sean Pyles]

Thank you for coming on and sharing your story.

[Scramble Hughes]

Yeah, of course. Thanks for having me.

[Sean Pyles]

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 [e-mail] and again, sharing stories.

[Elizabeth Ayola]

Can be one of the best ways to fight back against the scammers. So let's hear what you got.

[Sean Pyles]

We're about to get to this episode's Money Question segment where we go into whether Robo Advisor accounts are any riskier than traditional brokerage accounts.

[Elizabeth Ayola]

But before we move on, we have one last announcement. We are running another book giveaway sweepstakes ahead of our next Nerdy Book Club episode. Our guest is Dana Miranda, author of youf Don't Need a Stop Worrying About Debt, Spend Without Shame and Manage Money With.

[Sean Pyles]

To enter for a chance to win our book giveaway, send an email to podcastnerdwallet.com with the subject Book Sweepstakes during the sweepstakes period. Entries must be received by 11:59pm Pacific Time on July 31st. Include the following your first and last name, email address, zip code and phone number. For more information, please visit our official Sweepstakes Rules page.

[Elizabeth Ayola]

All right, let's get to this episode's Money Question segment. That's up next. Stay with us.

[Sean Pyles]

Today's episode is sponsored by Rula.

[Elizabeth Ayola]

Telehealth has made mental health care more convenient than ever. But let's be honest, getting support can still feel more stressful than tax season.

[Sean Pyles]

Finding the right therapist, booking a time that actually works, figuring out if they take your insurance. It can feel like too much. That's where Rula comes in. Rula is on a mission to make high quality mental health care affordable for everyone. They take most major insurance plans and the average copay is just $15 per session.

[Elizabeth Ayola]

Yeah, I started therapy about, wow, almost six years ago now and I know how much impact that it's made in my life. I feel so much more emotionally regulated and I have the tools I need to get through life's challenges. I've seen how therapy can change lives, mine, friends and family. And the hardest part of therapy is often just finding someone you click with. Rula takes the stress out of that search.

[Sean Pyles]

Rula starts with a few quick questions about what matters to you. Then it matches you with in network therapists who fit your needs. You can book as soon as the.

[Elizabeth Ayola]

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[Sean Pyles]

Thousands have already trusted Rula to support them on their journey toward improved mental health and overall well being. Head to rula.com smartmoney to get started today. After you sign up, they'll ask you where you heard about them. Please support Smart Money and tell them our show sent you.

[Elizabeth Ayola]

Go to r u l a.com smartmoney and take the first step towards better mental health today because you deserve quality care from someone who cares.

[Scramble Hughes]

This episode is brought to you by Lifelock. When you visit the doctor, you probably hand over your insurance, your ID and contact details. It's just one of the many places that has your personal info and if any of them accidentally expose it, you.

[Sean Pyles]

Could be at risk for identity theft.

[Scramble Hughes]

Lifelock monitors millions of data points a second. If you become a victim, they'll fix it Guaranteed or your money back. Save up to 40% your first [e-mail] podcast terms apply.

[Elizabeth Ayola]

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 Viglund.

[Tess Viglund]

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

[Elizabeth Ayola]

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.

[Bella Aviva]

Thanks, I'm happy to be here.

[Sean Pyles]

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 a Robo Advisor?

[Bella Aviva]

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 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.

[Elizabeth Ayola]

What about investing in something like an exchange traded fund within a traditional brokerage account? Are there any specific risks risks there?

[Bella Aviva]

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 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.

[Sean Pyles]

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?

[Bella Aviva]

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.

[Sean Pyles]

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 you 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.

[Elizabeth Ayola]

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?

[Bella Aviva]

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 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.

[Sean Pyles]

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?

[Bella Aviva]

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.

[Elizabeth Ayola]

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

[Bella Aviva]

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 insures assets above that regular SIPIC limit.

[Sean Pyles]

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.

[Bella Aviva]

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.

[Elizabeth Ayola]

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.

[Bella Aviva]

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. Like to make sure you're getting the best deal and that it serves your specific investing needs.

[Scramble Hughes]

Great.

[Sean Pyles]

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

[Bella Aviva]

Thanks for having me.

[Sean Pyles]

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 [e-mail] join us next time to hear about the latest financial news and what it means for your bottom line. Follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts and iHeartRadio to automatically download new episodes.

[Elizabeth Ayola]

And here's our brief disclaimer. We are not your financial or investment advisors. 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 Siglin. Hilary Georgi help with editing. Nick Karistimi mixed our audio and we want to give a huge thank you to NerdWallet's editors for all the ways they help us.

[Sean Pyles]

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

[Elizabeth Ayola]

Okay, before we let you go, Sean and I want to give another reminder about our giveaway. You could be one of seven winners of some really nice Smart Money merch. One person's going to get a pair of Sony ULT wireless noise canceling headphones and six winners will get the Bagu Cloud Carry on bag, which I heard Sean has and it's really nice. All you have to do is fill out our listener survey, which only takes a few minutes. You'll not only be helping us make the Smart Money podcast even better, but you'll also be entered for a chance to win those awesome prizes. Just go to nerdwallet.com podsurvey and complete the survey form by September 15th for a chance to win. You can read the official rules for more details, which again can be [e-mail] PodSurvey thank you and good luck.