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Money March 2015

Dollar Sense

Seven Signs that You May Have a Bad Financial Adviser

By Teresa Ambord

My grandfather passed up the chance to buy property in Orange County, California, which later became the Disneyland parking lot. True stories like that make us believe – sometimes that which is too good to be true really can be true. We want to believe! Unfortunately, that’s how otherwise smart individuals get taken to the cleaners.

You may be the smartest person you know. Financially successful, with a healthy retirement nest egg and security measures in place for all of your asset accounts. That might put you head and shoulders above a lot of your peers. It also puts you in the ranks of many victims of high-dollar fraud. Well-known financial adviser Ric Edelman hosts a weekly show called “The Truth About Money.” (Edelman was ranked the #1 Independent Financial Adviser by Barron’s, for several years. He’s the chairman and CEO of Edelman Financial Services, LLC, author of several financial advice books. You can find him at:

He says you don’t have to be a dummy to be a victim. Not by a long shot. Fraud, says Edelman, has been around since the securities market came into being. Taking a broader definition it goes back to Bible times, when Jacob stole his brother’s birthright and all the financial benefits that came with being the firstborn. Fraud is a fact of life that won’t go away. The securities market just made it easier.

It’s easy to avoid getting scammed, said Edelman, but people become victims when they are looking the other way. The scam artists are the lawbreakers, but victims are not without some responsibility, he said. They want to believe there really is a way to earn higher interest. We’ve all heard true stories of someone who got in on the ground floor of an investment that grew at a phenomenal rate, and made the investors rich. Or the guy who bought acres of cheap land that was undesirable, and sold it to a major corporation or government entity for a fortune.

My grandfather passed up the chance to buy property in Orange County, California, which later became the Disneyland parking lot. True stories like that make us believe – sometimes that which is too good to be true really can be true. We want to believe! Unfortunately, that’s how otherwise smart individuals get taken to the cleaners.

Here’s a rundown of Edelman’s seven signs of a dubious financial adviser. Scoundrels can be male or female, but for the sake of simplicity, we’ll assume this one is a guy.

  1. He boasts of how honest he is. If an adviser informs you of his own trustworthiness and truthfulness… step back and ask what he’s trying to do. Some scoundrels invoke God, claiming to be part of a religious group. That’s called “affinity fraud” where they hook investors through a church or group. For example, in 2010, said Edelman, an Amish man bilked fellow Amish out of 40 million dollars… just one of many such frauds.
  2. He asks for investment checks to be made payable in his name. Regardless of the explanation, if an adviser asks you to make your check out to him, or to a partner or other individual, don’t do it. Talk to another adviser who has no relationship to that one.
  3. The account statements you receive are in-house. You may receive statements of your investment which are generated directly from your adviser’s office. This should be seen as a huge red flag. It’s easy to cut and paste statements to show impressive returns on your investment. With today’s technology, fake statements may look quite genuine.
  4. He makes promises of big gains. First of all, nobody can promise a certain return, so if they do… assume there is a weasel in that woodpile. Fraudsters hook people who have large amounts of money to invest by holding out promises of more interest than they can get elsewhere. And for a while, the interest payments do come.
  5. He entices you with testimonials. The testimonials may be true, at some point. After all, the earliest investors in Ponzi schemes get great returns, some for years. Often, the “great returns” are paid directly out of the investments of new investors, rather than from the investments themselves.
  6. Your investment is hard to understand. When you ask questions about how your money is invested, there is always a complicated explanation. For example, your money is in a silver mine in central Africa. If you ask for your principal back, or ask why you didn’t get your interest check, it can’t be easily explained. You might be told, for example, that the government of the host country is holding up the release of investor funds, or they are demanding fees and taxes. The adviser might even say you need to help pay those fees and taxes with some additional investment.
  7. The adviser uses an unknown auditor. You may be presented with audit reports from auditors you’ve never heard of, and possibly can’t reach. In a fraudulent situation, chances are the auditor is in on the scheme, or may not even exist.

Again, if you’ve been cheated by an unscrupulous financial adviser, you are in good company. Bernard Madoff, the king of the Ponzi scheme had a long list of investors who – whether you like them or not – achieved great success in their fields. The list includes Steven Spielberg, Jeffrey Katzenberg (CEO of Dreamworks), TV host Larry King, Sandy Koufax, former New York Attorney General Eliot Spitzer, actor Kevin Bacon and his wife Kyra Sedgwick, some of Madoff’s family members and employees, and many, many more.


It’s Not Just the Wealthy Who Are Taken for a Devastating Ride…

Another well-known Ponzi schemer, now convicted and spending the rest of his life behind bars, is Allen Stanford. His client list is not as impressive as Bernie Madoff’s. But cons like Stanford are more dangerous to the average person. When his high-dollar investment scheme ran out of steam, Stanford started marketing to a broader target audience. He began offering fake certificates of deposit (CDs), with the promise of a return that was just a point or two higher than people could get elsewhere. Most investors recognize that CDs are generally a rock-solid place for their money, and by keeping the promised returns within reason, Stanford slid under the fraud-radar of astute investors.

But, of course, the money his victims gave to buy the CDs went instead to finance Stanford’s ridiculously lavish lifestyle. His long list of victims included an elderly couple who, after being looted by Stanford, lost the home they’d lived in for over 60 years. The wife died of an aneurysm after learning they were broke, and soon after that, the husband also died. The family blames Stanford for the stress that caused their deaths.


Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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