On August 17, 2012, the SEC shut down ZeekRewards, an alleged $600 million online Ponzi scheme. This is yet another reminder that investors need to do their homework before trusting someone with their life savings. Fortunately, there are a few simple steps you can take to protect yourself from investment scams.
Beware of the promise of high returns and low risk.
A lot of investment scams attract investors by promising very high returns will little or no risk. After all, everyone wants to make a ton of money but none of us enjoy investment loses! Unfortunately that’s not how things work in the real world. If you want to earn higher returns, you’re going to have to take on more risk.
Be leery of consistent returns.
All investments fluctuate in value. The higher the expected return of an investment, the more volatility you should expect. Be leery of anyone that promises large positive returns on a consistent basis regardless of the market environment.
Check for registrations.
Many Ponzi schemes involve unregistered securities, so make sure any investment you buy is registered with the SEC or state regulators. Also, if you’re getting advice from someone, make sure that he or she is registered and licensed with the appropriate agencies. Here in Texas you can contact the Texas State Securities Board to research an investment or financial advisor.
Check your statement.
You should receive a statement on a regular basis that lists each investment you have as well as the market value at the time the statement was generated. Review the statements for inaccuracies and ask about anything you don’t understand. Also, these statements should come from an independent, third-party custodian, not directly from your advisor (see next tip).
Don't give someone custody of your money.
Never
give an advisor custody of your money. Making sure your money is held
with an independent, third-party custodian will make it impossible for
your advisor to walk off with it like Bernie Madoff did. For example, we
use TD Ameritrade as our custodian. Our clients deposit money directly into
their own accounts at TD Ameritrade - not at Vannoy Advisory Group - and
TD Ameritrade provides them with regular trade confirmations,
statements, and other important account documentation.
Avoid complex or secretive strategies.
Warren Buffet’s advice is to never invest in a business you can’t understand, and that’s good advice to apply to investments as well. Swindlers often use complex or secretive strategies as a smokescreen to cover up what they’re doing.
Get a second opinion.
When in doubt, get a second opinion from someone that’s not directly related to the investment like a CPA or a fee-only financial advisor that works by the hour. You can go find a fee-only advisor through NAPFA or the Garrett Planning Network.
To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.
