Good due diligence is going to be the antidote to fraud…the more questions you ask, the better.
Marietta’s Portfolio Manager and Partner, Mary Allmon, was featured on CBS 58 discussing the importance of protecting yourself when working with an investment advisor. Following a recent Ponzi scheme committed in the Madison, Wisconsin area, CBS 58’s Brittany Lewis sought out Mary to provide viewers with guidance for avoiding investment fraud.
As an Independent Registered Investment Advisor of 20 years, Marietta takes due diligence and client security very seriously. We have compiled the guide below to offer recommendations on how to avoid fraud.
1.) What do people need to be cautious of when investing?
Watch out for Red Flags:
- Anything that sounds too good to be true.
- Any investment professional or product that guarantees returns. Also, high returns with little or no risk.
- Overly consistent returns. Investments go up and down over time. Be skeptical about any investment that regularly generates returns regardless of market conditions.
- Pressure to invest quickly.
- Unsolicited offers, cold calls, newsletters, ads that might come as a direct mailer or online through a banner add or social media.
- Persuasion tactics like seminars or sales pitches that offer free lunches targeted at specific groups.
2.) How can people protect themselves from becoming victims of an investment fraud scheme?
- Register your investment accounts in your name with an independent third-party custodian that is monitored by regulatory agencies. All transactions in your account should be fully visible to you daily either through account statements or the custodian’s website/app.
- Ask questions. Due diligence is the antidote to fraud. Thoroughly evaluate the background of any investment advisor or broker before you invest. A good investment professional will welcome questions and have informed answers.
3.) How can investors tell that the account statements they are receiving are real and not fictitious?
- Cross-check your statements. If you are using an independent third-party custodian, there should be at least two sets of statements, one from your advisor and one from the custodian. Watch for transactions that do not appear on the brokerage statement or if there are frequent transactions you don’t understand or don’t add up.
- Check the financial institution name and logo on the statement. Look at the contact info on the statement and check for discrepancies.
- Try to avoid commingled and/or pooled funds where the manager has custody and possession and/or the account activity statements are generated by only the manager and not by an independent third-party.
- Carefully review the contract used when signing up with an investment professional. Watch for misspellings, careless wording, or vague language. Consider having an outside professional review the contract before signing.
4.) What are some other documents people should ask for when investing?
- For advisors: Firm registrations with regulatory authorities, ethics policies, information and cyber security policies, and sample statements.
- For investment products: A prospectus or disclosure statement.
5.) What are some “tough questions” investors should be asking when investing money?