Last week I talked about some of the ways to find an adviser and some key items to look for when selecting an adviser. Ironically this past week, news broke that yet more high-profile and wealthy athletes were victims of investment fraud.
Former New York Jets quarterback Mark Sanchez and major league baseball pitchers Jake Peavy and Roy Oswalt were defrauded out of about $30 million, according to a recently unsealed U.S. Securities and Exchange Commission lawsuit in Dallas federal court. These professional athletes said they were cheated out of millions of dollars in a Ponzi-like scheme orchestrated by an investment adviser who appealed to their Christian faith.
Even though a potential adviser may come to you through a trusted resource or friend, you still have the responsibility of vetting the potential adviser yourself. After all, it is still your own financial life. When going through the vetting process of a potential adviser, beware of the following:
- Flattery, whether extreme or mild, be very perceptive around someone who is telling you exactly what you want to hear in order to have you hand over your money;
- Guarantees, if something appears to be too good to be true, it likely is. There are no guarantees in life especially in the world of investing;
- Complexities, some people/advisers want you to believe that investing is too complicated for a layperson to understand. It’s not. If an investment cannot be explained in a few bullet points/sentences then it is likely dangerous for both your actual and financial health;
- Defensiveness, if the potential advisor becomes defensive, agitated, or combative when you ask questions surrounding investment style or financial management process, this could highlight underlying issues/concerns.
Point to Help You
While not foolproof, here are a few points that could help you protect yourself:
- Make sure that your spouse or partner meets with your potential adviser at least once prior to you moving forward. If you are single, invite a trusted friend to come along with you. An unbiased viewpoint may be able to alert you to details that you have overlooked;
- Request a meeting with your adviser at least annually or whenever you need further explanation regarding your investments or strategy. A trusted adviser should always be able to respond to your needs and questions in a reasonable time frame. If you feel that your adviser is avoiding you, that could be a red flag;
- Understand how much you are paying in fees and how those fees are being deducted from your accounts;
- Review your financial statements on a consistent basis (quarterly should be sufficient), be on the lookout for fees or transactions that seem out of the ordinary, investments that you are not familiar with, or that do not align with your financial plan.
Know your values and what is important to you, how you decide to manage your finances/investments says a lot about who you are.