How To Avoid Scams

The Bernard Madoff scandall on Wall Street has more than rich fat cats concerned about protecting themselves from scam artists. If the rich and powerful can fall prey to alleged scam artists like Madoff, say concerned consumers, what chance to we have?  You should be very concerned about Ponzi scams and other types of hoaxes. While scams will always be a threat, there are many ways to minimize the threat to your finances.

• Do your homework – It’s tempting to think you can hand your money over to someone who has the Midas touch and can make you rich without having to do the due diligence and oversight ourselves. There are many honest, talented professional money managers available if you don’t want to, or are not capable of, investing on your own.  But before you hand over any of your life-savings to someone to manage, take the time to investigate the person, his/her firm, and the individual’s track record. Check with EthicsCheck.com, the SEC and the Better Business Bureau.
• Don’t trust referrals from anyone – That does not mean that everyone you know is dishonest and can’t be trusted.  In fact, referrals can be a great way to find good money managers.  It just means you still need to do your homework since you won’t know for certain if the person who gave you a referral did his homework.
• Stick with reputable institutions – Your chances of getting ripped off are much less when you deal with a money manager associated with a reputable institution.  Also, reputable Wall Street firms are more likely to have a grievance procedure you can use to attempt to get your money returned.
• Research where the manager says he will invest your money – Does the investment vehicle he is selling have a track record you can see?  Are the returns similar to what the money manager in question says he can get for you?  Check the track record of the investment and ask him how he plans to beat the averages for that type of investment
• Look for conflicts of interest – Is the money manager claiming some special insight or influence over the market for the investment he is pitching? Does it appear illegal, or is there a possible conflict of interest? If so, it’s best to stay away.
• Look for checks and balances – One example would be if the investment is registered with the SEC, or if it is audited by a reputable public accounting firm.
• If you don’t understand it, don’t invest in it – If you don’t have at least a basic understanding of the type of investment the person is selling you will be unable to ask the sophisticated questions that might identify a scam.  Stick to what you know when investing yourself or through professional investors
•  If it sounds too good to be true, it probably is – Sure it’s a cliche, but a wise one.  Don’t let greed or temptation blind you to a scam.