In light of the "advisor" Earl Jones scandal, Advocis offers some tips for spotting an investment scam.
"The first and most important warning sign is the advisor offers you some unrealistic and/or consistent returns on the investment," says Greg Pollock, Advocis' president and CEO. "Such promises are fundamentally contrary to the very nature of a stock market. Stock markets go up and stock markets go down. Legitimate results vary."
Other warning signs include pressure to invest beyond your comfort level.
A responsible financial advisor or planner will understand your financial goals and objectives and how much money you are willing to risk in any investments.
A fraudulent advisor will lead investors to believe that all their money has been placed into one financial vehicle when, in fact, returns are the investors' own money or more recently recruited investors.
Another hallmark of an investment fraud is a promise of exclusivity — sometimes described as a "special deal." Legitimate investments are generally available to a broad range of investors.
Pollock uses an old saying investors should consider when deciding on an investment: "If it's too good to be true then it probably is."
To avoid an investment scam, Pollock recommends clients do the research. Get referrals from other clients and find out if the advisor has the appropriate licences and professional designations.
The next step is to verify all the information gathered. Verify that the money invested is going to a legitimate third party, such as a bank. The statements should include key information, such as a street address (not a post office box), a list of the investments and their activity over a period of time.
Then, verify with the appropriate licensing body that the advisor is duly authorized to do business in the province.
Finally, investors should ask questions. A fraudulent advisor may refuse to answer questions.
If you have any questions, feel free to call me.
Reprinted from Advisor.ca, July 16, 2009