When it comes to making money decisions, doubt and self-doubt are inevitable. After all, unlike many choices that are subject to whimsy and fate, financial decisions can be judged by their direct impact on your well-being, now and in the future.
Or to put it simply: It's your money. Presumably you worked hard to accumulate it, disciplined yourself to save it, and now you want advice you can trust about how to manage it.
Many of the questions posted on my blog at www.TerrySavage.com revolve around the issue of trust. Of course, people who trust their own financial decision, rarely post questions! Or maybe they just want a second opinion. But many of the questions posted ask me to second-guess advice (or a sales pitch) from a financial professional.
My comments must be general, because to give specific personal finance advice requires that an advisor know far more about an individual's personal situation than could possibly be posted on a blog. At most, I can point you in the right direction - a direction that I presume will be the least biased by greed and the most supported by experience and integrity.
So what should you know before you take financial advice or direction from an individual or company? What should you ask? What should you expect? How should you double-check? In short, whom should you trust?
Finding Trusted Advisors
Let me start by saying that there are bad people in every profession, and it is never wise to assume that a title, a degree, an air of superiority, or the appearance of financial success will guarantee you are dealing with an honest person.
In fact, the "trappings" of success -- lavish offices, public profiles, expensive entertainment and lifestyle -- are far too often the hallmark of a fraudster running a scam. But that's just why scams continue -- because people are blindly attracted to success, even when it seems unlikely in any rational form.
Remember, Madoff didn't advertise. He got his next victims through word of mouth, from people who bragged that he made them money in both up markets and down. How silly in hindsight, and even at the time!
So, simply checking references from other clients is important -- but clearly, it isn't the entire answer. When it comes to financial professionals there are several websites that you might use to do a background search. The most comprehensive database on both brokers and investment advisors is maintained at www.FINRA.org, the industry's self regulatory organization. The "broker check" feature gives backgrounds on all current and former brokers, brokerage firms, investment advisor firms, and advisors.
Recently it was revealed, however that even the FINRA database does not give a full background check of bankruptcies, and other civil litigation. So you might also want to check your state's database of registered brokers and advisors.
Just because you are talking with someone who is employed by a big-name, well-known firm doesn't mean you should be complacent. There are plenty of disciplinary actions taken against employees of major league firms.
And speaking of names, don't be overly complacent because of the name on the front door. For example, you might walk into a bank and presume that anything you invest in will be safe and insured. Think again. You could be talking to a representative from the investment company within the bank. The products they offer may have enticingly higher yields, but no FDIC guarantee.
One of the best ways to figure out who's on your side is to understand the motivation and the regulation behind their activities. For example, despite a great attempt on the part of the investment advisory industry to change things, if you're dealing with a broker or registered representative or investment consultant at a brokerage firm, these individuals are not required to put your best interest ahead of their own!
Only a registered investment advisor must adhere to a "fiduciary standard" that requires the client's interest to come first, and requires the advisor to fully disclose any conflicts of interest. Brokers are only required to present "suitable" investments.
Always ask the salesperson how he or she is being compensated. Is it an initial commission that comes out of your investment dollars? Are there surrender charges if you want to get out of the investment? (Those charges help offset the broker's commission.) Are there additional annual management charges levied on your account?
There are plenty of financial advisors who only charge fees, and others who combine fees and commissions. But if the salesperson is getting paid only if you make a purchase, you're wise to think twice about his or her motivation. On the other hand, good advice is always worth paying for. But how will you know the advice is good if you don't ask the right questions about risk, reward, and costs?
Trust Your Instincts
And that brings me back to where I started, with the question of whom you should trust. First, trust your own instincts. If something seems not quite right, don't be pressured into making a decision. Get a second opinion -- preferably from someone who isn't just trying to sell you an alternative product.
There's never an investment opportunity that is so rare, and so pressing, that you can't postpone a decision while you do some research. As they say, there's always another train coming along. In the meantime, while you try to decide what to do, you can just leave your money in an insured money market deposit account, earning little or no interest. You won't lose money by being careful while you make an educated decision.
Better safe than sorry. And that's The Savage Truth.
Fraudsters feigned interest in lonely online romance seekers to rob victims of about $50 million last year.
Phony debt collection agencies have pressured victims into giving up millions of dollars. The Federal Trade Commission recently closed down two California-based companies with call centers in India after they defrauded Americans out of $5 million over the past two years.
Craigslist and eBay are a playground for scammers. Consumers have sent payments to places like Nigeria for items advertised online only to discover they have been scammed. Last year, Romanians pretending to be U.S. citizens put fake ads for pricey items on eBay and Craigslist, defrauding Americans out of more than $100 million.
Canadian police arrested a man who tried to take a $70,000 processing fee from an elderly Californian woman who believed she was going to win a $7.5 million lottery prize in April. More recently, eight Jamaican swindlers accused of duping Americans in lottery scams were also arrested.
Fake charity organizations come out of the woodwork to exploit the generosity of others, especially during times of disaster. Most recently, an organization that claims to help disabled veterans called Disabled Veterans National Foundation (DVNF) took millions of dollars from donors without spending the money on veterans.
Scammers targeting struggling homeowners have offered false services to help with mortgage settlements. Mortgage foreclosure scams have shot up 60 percent in 2012 as new federal programs for mortgages have provided avenues for fraudsters to exploit.
Scam complaints related to travelling surged right before spring break last year. Crooks defrauded grandparents out of money when their grandchildren were travelling abroad. The scammers, who find out about the travel plans from places like social media sites, pretend to be the grandchild asking for wire transfers on the phone. The scams have involved scammers pretending in an email to be a victim's travelling relative who has recently been mugged or has lost their passport.
Although there isn't much data on how often it occurs, food scams can pose a tremendous health risk. The chances of dilution and counterfeiting increase when food is imported from other countries, and some foods like fish and olive oil are particularly prone to adulteration.
Scammers have sold drugs to online consumers and then posed as government agents asking the buyers to pay money to avoid jail time. A Texas woman killed herself after being caught up in one of these drug schemes.
Credit card breaches allow fraudsters to make charges on other peoples' cards after getting a hold of numbers. Global Payments Inc., a third party payment processing service for MasterCard and Visa, made headlines in April for reporting that over a million card numbers had been compromised from their system, according to CNET.
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