I had a client call in yesterday and ask to speak with me.  He said that he wanted to hear my voice to make sure that I was not gone to the Bahamas with all his money.  He was joking of course but in this world, it can be more than scary to hear stories of scammers like Madoff and more recently, Earl Jones.  It appears that, just like Bernard Madoff, Earl Jones, a financial advisor from Montreal, orchestrated a Ponzi scheme and allegedly defrauded a total of about $50 million dollars.

How can this happen and more importantly how can you protect yourself from scams like these?  Here are a few basic things to be aware of in dealings with people who

Be aware that not everyone is trustworthy: Terry says all the time, never trust anyone, if your mother says it is her birthday, ask to see her birth certificate!  Well that is a bit extreme but the point is that crooks are often very nice people.  They are usually very personable and charming.  First and foremost, just be aware and avoid trusting everyone before they have earned your trust.

Check your behaviour: A con man on a CBC W5 episode said that he looks for three things in a victim: “ Greed, Gullibility and a Willingness to be controlled by others”.  How would you fit in this description?

Do some basic checks: The first thing to do is to make sure that they are who they say they are.  In Canada, anyone representing themselves as a financial advisor investing funds for clients must be licensed and his/her activities must comply with securities commission regulations.  Earl Jones was not licensed.  A simple check at the province security commission would have raised the red flag.

Other basic checks: With the internet today you can find a whole lot about people.  By doing a simple “Google search”, you can see if the advisor has a legitimate website, how long they have been in business, and more importantly, you may be able to find out if some people have had issues in dealing with this person.  The Better Business Bureau is also a very good way to check if any complaints were made about this individual or the business you are thinking of using.

Are your returns unusually high and consistent?: Both Madoff and Earl Jones paid consistent high returns to their clients even in major market downturns.  No one can consistently achieve positive returns investing in stocks and bonds. If it is too good to be true, it probably is. 

Are you getting third party statements: Many of you,our clients, complain about the multiple statements you get.  When dealing with an advisor like us, you should be getting statements from the investment companies we place your money with, not just from the advisor’s office.  Like Madoff and Jones, we could print anything, but if you are also getting the regular investment companies statements and the investment dealer statement once a year (FundEX in our case) you now have three layers of safety.  If you are only getting a statement from the advisor’s office, something is not right and you should investigate further.

Who do you write the cheques to: If the advisor is asking you to write the cheques to him personally or his business, something is not right either.  Cheques should always be written to the investment dealer “In Trust”. 

Follow your gut instinct: If something does not quite add up and you wonder, don’t wait.  Ask questions and follow your gut feeling.  Change advisors if you are not quite certain of the integrity of the person you are dealing with. 

Unfortunately, not everyone is honest and you must learn to be aware.  Whenever in doubt, or when it sounds too good to be true, just stay away. In the end, better be safe than sorry.