Get to Know the Players
Financial advisors go through a registration process with different authoritative bodies such as the Securities and Exchange Commission or the Financial Industry Regulatory Authority Broker. Start there when considering a new agent to help build your portfolio. Double check to see if this person is registered, and then take the time to review any past complaints before you give them personal information. When shopping around for advisors ask for references, and consider hiring a company to do a background check.
Don't go into any deal blind either. Review evaluations with the major exchanges on publicly traded funds. The listing and returns will match what the advisor says. If not, that means something is up. If looking at a private placement, you will need to dig further to ensure that the trade is real.
If It Sounds to Good to be True
It is an old saying, but it still works. Be skeptical of every opportunity. Stay away from complex schemes to make or save money. Remember, no one does anything for free. If it says zero interest, there is still going to be a catch somewhere. That doesn’t mean that low or no interest might not be a winner, just read the fine print.
If you make an investment and the initial returns are abnormally high, that might be a red flag. Bernie Madoff drew people into his scam with high market fluctuations. Monitor excessive short-term payouts against an appropriate benchmark such as the Dow Jones or S & P 500. Stay away from any
deal that promises a return with little or no risk.
Look for a Separate Custodian
Consider an outside custodian as a gatekeeper. When you deal with a broker, a third-party financial company will monitor funds and back-office functions. This independent firm handles the settlement and payout of trades and prepares statements. Don't use a firm recommended by the broker - go with someone you know or follow the recommendation of a person you trust. When you have doubts about a potential or current investment, go to the gatekeeper to get more information.
Do Some Leg Work
Don't rely on anything another person tells you about a potential investment. Make private inquires of your own. For example, the SEC recommends you read financial statements to gain insight about an investment opportunity. In the Internet age, there is no excuse for not doing independent research. People committing fraud will add just enough truth to a story to make it seem legitimate. An Internet search and a little digging might highlight false information. Unless you prove a business is legit, assume it is not.
Guard your Online Security
So many transactions happen online these days. Now is the time to enhance personal security and avoid becoming a victim of a white-collar crime. Ensure you have proper firewalls and anti-virus software. Run the latest operating system updates to keep security patches current. If dealing with an online brokerage service, make sure they follow proper security protocols such as using encrypted websites. The web address should always begin with "https" when dealing with any transaction.
The bottom line is no strategy guarantees to keep you from being ripped off in the financial arena. The key is to minimize risk with some common sense. Take a breath before giving anyone money for an investment. The more time you put into research and verification, the better your odds are of success.
This article was contributed by Chase Sagum. Chase writes about credit repair and personal finance issues/opportunities.
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