Objective information about financial planning, investments, and retirement plans

Financial Fraud – Tips to Protect Yourself

Share

Chasing Madoff

Financial fraud is all over the news.  Whether high-profile Ponzi Scheme cases via the likes of Madoff or Allen Stanford or many smaller cases; investors are being defrauded out of their hard-earned money at an alarming rate.

I’d like to tell you that the problem emanates only from financial advisors who sell product, but sadly two former presidents of NAPFA the country’s largest organization of fee-only advisors have been implicated in fraud cases over the past few years.  Full disclosure, I have been a NAPFA Registered Advisor since 2003.

Given the increasing skill and imagination of fraudsters there is no fool-proof way to protect you and your family from financial fraud.  None the less here are some tips for you to reduce the risk:

  • If a financial advisor suggests that you don’t need to house your investments with a third-party custodian such as Schwab, Fidelity, your bank, Merrill Lynch, etc. I suggest that you run (don’t walk) away from any relationship with this person.  This was one of the key ways in which Madoff was able to perpetrate his fraud for so many years.  He sent his own client statements.  While a third-party custodian is not fool-proof, you should insist upon this arrangement.  Besides receiving an independently prepared statement, you can generally set-up online access.  As a financial advisor I can’t imagine doing things any other way.
  • Read and review your account statements on a regular basis.  Besides being a good practice anyway, this is a must to catch honest mistakes and potentially fraudulent transactions.  Case in point was (sadly) another former NAPFA advisor who allegedly took client funds from accounts at Schwab via forging their signatures.  I’m sure that he was counting on the fact that many clients never review their account statements.  (Post script to this, over the past year I’ve received calls from Schwab on two separate occasions to verify transactions for a client whose signature has changed from what they had on file when we first opened the account.)
  • Don’t assume that you can trust an advisor just because he or she attends your church or you are in the same Rotary club.  Affinity fraud is far too common.  Many of Madoff’s victims were member of the Jewish community up and down the East Coast.  I’m not saying to disqualify an advisor because they are a member of your church, but they should be put to the same level of scrutiny as any other advisor that you would consider.
  • If an advisor is insistent that you invest NOW, be very leery.  There is no investment that is that urgent.  Investments should be made after careful planning to ensure that they are part of a strategy that is right for you.  Don’t let yourself be pressured into doing anything with your money.  High pressure often equals a scam.
  • If you don’t understand an investment vehicle proposed by a financial advisor don’t allow your money to be invested there.  Demand he explain the investment to you until you do understand it so that you can make a good decision.
  • If you have elderly parents or relatives talk to them about investment scams as many are aimed at seniors.  While this can be a touchy subject it is an important one.  Sadly a high percentage of the financial fraud aimed at seniors is perpetrated by family members.  Your help here may include protecting these people from other members of your own family.
  • Overall make sure that if you work with a financial advisor that you stay engaged in the process of managing your money.  While it is great to find a trusted advisor, make sure you continue to ask questions about the advice they are providing and why they feel a particular investment or course of action is right for your situation.

Financial and investment fraud is rampant.  The steps above can help but overall be diligent about your finances and the people you are trusting to provide you advice.  Be especially leery of unsolicited calls urging you to invest in the next hot thing.  If something sounds too good to be true it probably is.

Please feel free to contact me with your investment and financial planning questions.

 

Photo credit:  Wikipedia

Enhanced by Zemanta

If you enjoyed this article, please enter your email address to receive the latest updates about financial planning, investments, and retirement plans.

Comments

  1. Financial fraud is rampant! A little time, effort, and common sense can go a long ways in protecting yourself. Thanks for the reminders!

    • Roger Wohlner says:

      Ken your are right that financial fraud is rampant, we all need to protect ourselves. Common sense is a great starting point, but sadly many of these fraudsters prey on the least financially sophisticated members of society.

  2. I just watched the Chasing Madoff documentary on SHOTime (I think, one of those channels). Anyway, it was incredible how inept the SEC and others were at even acting on the most obvious fraud case. It solidified to me that you really need to look out for yourself and can’t count on laws and regulation to protect you.

    • Roger Wohlner says:

      Thanks for the comment. I haven’t seen that one, but it sounds consistent with some of the other accounts that I’ve seen. You are right on in that we all need to look out for ourselves. What is sad (and maddening) is that often the victims of financial fraud are the elderly or folks who are very financially unsophisticated, both groups may not have the capacity to look out for themselves.

Trackbacks

  1. [...] Tips to Protect Yourself From Financial Fraud – The Chicago Financial Planner [...]

  2. [...] Wohlner @ The Chicago Financial Planner writes Financial Fraud – Tips to Protect Yourself – Financial fraud is all over the news. Whether high-profile Ponzi Scheme cases via the likes [...]

  3. [...] Wohlner at Chicago Financial Planner writes Financial Fraud – Tips to Protect Yourself. Given the increasing skill and imagination of fraudsters there is no fool-proof way to protect [...]

Speak Your Mind

*

Current ye@r *