Don't Trust Your Advisor
In the past few months, we've been inundated by Ponzi schemes.
First there was the $50 billion Madoff disaster. Then the SEC was cracking down on a $23 million scheme involving Haitian-American investors. A few days go by and a Philadelphia investment adviser is getting nabbed for stealing millions from people who considered him their close friend; Almost the same thing pops up in Atlanta a few days later. Then Sarasota; Nashville, and Gilberts, Illinois. (For an amusing look at Ponzi schemes through history, check this out.)
These are not related schemes. They're just similar in that the crooks are taking advantage of their friends--promising to sagely invest their money and then using it, instead, to live large on other people's savings.
I can't count the number of press releases I've received since then. Between the SEC and state regulators, it feels like half the investment advisors in the universe were buying their yatchs with your retirement money. (California's Attorney General Edmund G. Brown charged three men on Friday, May 23, for stealing $200 million from Northern California seniors. The seniors thought they were buying into retirement communities. The crooks had a better idea. They used the senior's life savings to buy an 80-acre estate and a Lear Jet.)
To be sure, few of these guys have been convicted yet. And everybody's innocent until proven guilty--even when there's a mountain of circumstantial evidence.
But never in 25 years of financial reporting have I seen such brazen and pervasive crooked behavior. Worse, I don't know what to tell people to do about it.
In the past, I'd tell investors to look at their advisor's credentials. Madoff's were marvelous.
Financial journalists are always telling people to pick advisors like they pick doctors--get referrals from your friends. That good advice would lead you right into the clutches of any number of these con men.
I try to tell people to understand what they're investing in because then you can recognize other warning signs, but I've come to realize that few people understand investing basics well enough to protect themselves.
The only advice left is: Don't trust anyone.
Make your advisors explain what they're investing in. Then make them show you the benchmarks that would allow you to gauge their performance. If they're investing in stocks, for example, ask how they're performing against the popular stock indexes--the Standard & Poor's 500, for example. If they're doing significantly better or worse, ask why. Then take those statements to the savviest friends you know and ask them if the explanations make sense. If you dont understand the investments yourself, get a second opinion. Don't give anyone access to your savings until all your questions are answered.
That's lots of work. And few people want to spend the time for something that's not life-or-death. But, your ability to retire without worry--and work--may rely on it.
