Recognizing a Scam

Trust, but verify. President Ronald Reagan’s words are appearing again in the news. It is good advice, especially when it comes to your finances. Over the course of my life I have seen many financial scams come and go. I keep hoping that in our day of unlimited information these things will eventually all be exposed and go away, but I have been sadly disappointed. Rather than help to expose fraud, the internet seems to have merely provided greater access for scam artists to their victims.

The warning signs of a scam should be obvious. The patterns are so predictable and the methods so boringly the same, but somehow people keep getting taken. And so let me attempt again to describe the scam artist who may be knocking at your door, or inbox, today.

He will be well dressed, intelligent and extremely likable. OK, good advisors fit that description as well but that is my point. Someone trying to take advantage of you will not be meeting you in an alley wearing a black raincoat with dark sunglasses. In every way he will try to look legitimate.

He will most likely not have a securities license. He will claim that licensing restricts him from offering the best investments and assure you it provides you no benefits.

He will probably belong to your club, your kid's sport team, or even your church. He knows that if you share a common fellowship you are more likely to let your guard down. He is looking for a way to get past your natural protective instincts and has learned that being a fellow lodge brother works very well. 
He will certainly use testimonials. He will offer a list of your friends or key community leaders who will vouch for him, to whom he has been faithfully paying a dividend. These innocent people are marketing tools and usually completely unaware they are being used to promote a scam. As a side note, registered investment advisors are prohibited from using testimonials.

He will always offer above market rates of return. He knows your common sense will smell a rat so he overrides that by appealing to your greed. If the return is more than traditional investments are paying, then be very cautious. Truly good investments do not need to pay exorbitant returns to attract investor dollars.

He will claim to have some secret for making money that others do not know about. He will tempt you with exotic investment schemes that he claims only a few very wealthy individuals are privy to. 

And finally, in describing himself and his investments, he will continually use the word "trust." In the world of scam artists, the word trust is slang for "don’t do your homework."

Con men make every effort to imitate legitimate financial advisors. Your first line of defense is to trust yourself and your instincts. If something doesn’t feel right, it probably isn’t. If you decide to move forward, remember to take time to verify what you are being told.