Be wise and protect your investments

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Read or listen to the news on any day and you’ll find instances of someone, young or old, who has fallen into a trap by being ignorant of governmental or legal practices, or simply by trusting another person.

Con artists have always preyed on the innocent; fraudsters make sure to keep up with the times, inventing new ways to separate people from their money. The Consumer Finance Protection Bureau and the Certified Financial Planner Board of Standards, Inc., both publish guides to inform consumers how to protect themselves. Here are some of their nuggets of advice. Please visit both organizations to learn more.

Investments: Do the new regulations help you?
New governmental rules require that investment advisors make recommendations that are in their clients’ best interests instead of pushing products that may be less appropriate for the clients, but that would make more money for the advisor. The new rules, which won’t go into full effect until 2018, affect only tax-free investments such as 401(K)s or IRAs, and smaller tax-free plans can be exempt. In addition, the regulations affect only “advisors;” brokers (who might call themselves advisors) are not obligated to follow the new rules.

Investors should talk to their investment counselor and ask hard questions, finding out how their firm plans to comply with the new procedures. While many commission-driven consultants already work in their clients’ best interests, protect yourself by finding out about how your investments will be handled.

More investments: Is it real or is it fraud?
Social media and the internet have made it easier than ever for crooks to target hopeful investors with fly-by-night opportunities. Some offers come through the internet or through mailed invitations to “free investment seminars.” Some are genuine, but at others, salespeople push what might be less-than-legit investments.

Watch out for red flags. If you are promised huge gains without risk, if you are guaranteed a return on an investment or if you are told you have only a short time to act, chances are that the so-called investments are actually flim flam. There are also dozens of other investment frauds including fake bonds, fake letters of credit and pyramid schemes.

“I’ll fill out the paperwork for you.”
The paperwork with investments can be enormous; you’re a busy professional. This is a tempting offer. But sometimes the advisor gets the information wrong, or, if the person is unscrupulous, deliberately uses incorrect information to make the sale. For example, a life insurance policy application notes that the applicant has no history of alcohol abuse, even though there’s a DUI on record. When the applicant dies in a car crash, the insurance carrier investigates and refuses to pay the claim.

In self defense, always make sure you review the completed paperwork; it should be clearly marked “final” or “as submitted.” Don’t leave blanks that you could fill in yourself.

Rogue advisors
Your financial professional asks you to meet at a restaurant instead of at her office and pitches an exclusive offer. You noticed that her letterhead looked different, or her business card has a different company’s logo. These are immediate red flags for you.

The advisor may be attempting what’s called “selling away,” which is selling an investment that her employer knows nothing about or doesn’t supervise. The trap is that your money could be going into fraudulent investments and you will have no recourse or legal claim against the employer.

Your senses should be on high alert here. Ask her to verify in writing that her employer is aware of the offering, or ask the company directly whether it approves and supervises the investment. The Certified Financial Planner Board of Standards is very specific, stating that “investments should always be regulated or supervised by independent third parties, with the risks and possible conflicts of interest fully disclosed.”

“Make the check out to me.”
When you hear these words, no matter how much time you have spent learning about the investment or how much you may like the person (who in fact is, in our opinion, the worst confidence man there can be), it’s time to fold up your papers and go home.

This practice is at best unscrupulous and at worst, fraudulent. The most obvious bad result is that the check ends up in the advisor’s bank account and you will never see the funds again.

Never give an investment professional power of attorney for your investments. Ask hard questions if you’re asked to give the advisor unlimited access to money that you’ve intended for investment.

Question and question again
Yes, it can all be complicated, but your investment advisor is a professional and is trained to answer questions. Ethical people never hesitate to give clear explanations or to be honest about how they are compensated.

If you’re uncomfortable with the answers, the cost of a second opinion on the advisor’s strategies and returns can, in the long run, be worth the heartache of losing everything you have worked for. HLM

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