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  • Writer's pictureJeran Van Alfen, CFP®

Expert Advice or Total Scam?

I was watching a documentary this week with my kids that showed how misleading advertising can be for our decision-making process. The movie showed clips of old tobacco ads featuring the great athletes of the time. Babe Ruth, DiMaggio and others were shown as the epitome of athleticism while smoking away. As restrictions were placed on tobacco advertising, the same methodology was picked up by fast food. Michael Jordan and Larry Bird among others were shown chowing down on a burger and we were supposed to believe that this was the meal of champions. I thought about how inaccurate and false information is fed to us with the stamp of approval from professionals and it reminded me of how much this happens in financial advertising. There are so many marketing schemes designed to get your money and many of these schemes come with credentialed experts attached to create some credibility. More than ever, the retirement age group has become a target. Also, with our lives increasingly accessible online, your interests, political preferences, and even religious beliefs will be used to customize the advertising that you see. It is so important to protect yourself. I have included some advice below that was originally printed by the New York Attorney General to help protect people from financial scams[1].

The Anatomy of a Scam

All scams have the same structure. Learn what it is and you will recognize it when it is pitched to you.

  • The Distracting Hook: Money. Love. Fear. Con artists use one or more of these to draw victims into the scam, to divert their attention away from the details of the investment. The promise of riches can be irresistible. There is no such thing as a guaranteed return on investment, yet this is exactly what is promised. Love, trust and good will are basic human traits that scammers prey upon. Scammers will use your fear about your financial security, or worse, bully you into investing.

  • Trustworthy Seller Credentials, references, success stories: Scammers will always let you know how good they are at what they do. Frequently, they will join churches and social groups in order to find victims.

  • Deadline: They use a deadline in order to keep the victim from the due diligence that would reveal the scam.

The Language of a Scam

Just like the anatomy, scams have a vocabulary that’s recognizable. When you hear phrases like these, you can probably count on it being a scam:

  • “Keep this information to yourself.” Under the guise of “confidential” information, scam artists persuade the victims to keep quiet about their investments. They want you to believe they— and now you — have information the public doesn’t have. They also don’t want you to talk to financial advisors who will tell you it’s a scam.

  • “Guaranteed to MORE than double your money.” First, there are no guarantees in investments. Second, the higher the returns, the higher the risk – that’s fact.

  • “Profit like the Experts!” These deals tend to be complicated, too difficult for the “regular” investor to negotiate. They are also very high risk, and more likely to lose money than profit.

  • “Buy now, before it’s too late…a one-time opportunity.” Clearly, the scammer wants the money before the investor has time to consider or research the product.

Who are They?

Investment fraud comes from many sources: phone calls; free lunch seminars; internet bulletin boards and emails; advertisements for “senior specialists.” Most importantly, they are frequently people the victims know and trust: family members, friends and caretakers.

We All Have Access to Information

I think it is so important to be cautious when anything sounds too good to be true. When it comes to investments, we have open markets and we all have the same information. If an investment is marketed to you as a secret strategy, then there is probably something off.

Make Sure to Do Your Homework.

Here are some titles to advertisements that I have seen recently. While the end product may or may not be a scam, it is definitely a product designed to grab your money. They all seem a bit suspect:

“#1 wealth building opportunity”

“Mankind is Moving to the Brink of Abyss...the Mother of all Bubbles”

“Click here to find out how to claim your FREE copy of this urgent report”

“This photo will change everything in 2020…I can’t say where this photo was taken, but you need to see it”

“The Ultimate “End of the Dollar” Defense Manual”

It is completely understandable for someone to see these headlines and be intrigued to know what it is all about. Many of these headlines are attached to individuals flashing credentials or notoriety. Keep in mind, that each one is trying to grab a piece of your nest egg and they are paying their spokespeople well to help them get your attention.

It is also important to think about how each investment you make fits into your overall financial plan. Remember there is a relationship between risk and reward and if you are taking on more risk, you should expect to be paid for it. There is not always an incremental rise in reward when you take on more risk, so make sure to find out all that you can about the potential for reward and the potential for loss. With your overall portfolio, you should be well diversified and know how much money you can afford to earmark for “speculative” investments.

How to Do Your Homework:

Check mainstream sources. Go to trusted investment platforms like Fidelity to do research on investments. You will find analyst reports that are not biased by selling you a product. You can also research reputable publications like the Wall Street Journal or Investor’s Business Daily.

Ask questions:

  • Are you and your firm licensed? What is your registration number?

  • Do you have a prospectus for the investment?

  • How do you get paid?

Make sure to check with your state’s department of securities or the SEC to research advisers and companies that are selling you investments.

You’ve worked hard to earn your money. Make sure to protect yourself and find trusted advisers who can help you evaluate offers that come your way.

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