Beware Of Investment Scams

Unless you’ve been living on a deserted island for the past few years, you’ve most likely heard of Earl Jones and Bernie Madoff at least a couple of times. Earl Jones started his own “investment advising business” in 1979 but was never registered as a financial adviser with any securities regulator. His long running ponzi scheme cost his victims an estimated $51.3million. Although he was licensed in the USA, Bernie Madoff managed to run a ponzi scheme over 20 years that defrauded thousands of investors of billions of dollars.


With countless stories like the ones above appearing in the news each year, how does an investor protect themselves and ensure that their money is safe? The burden, at least in part, falls on each of you to do some basic homework and make sure the advisor you are working with is who they say they are. So what should you be on the lookout for?

The first “red flag” is often when you see or hear any claim that an investment is risk free or offers consistent returns that always outperform market averages. I received a promotional flyer in the mail not long ago that offered a 5 year “GIC” that paid 10% per year! With current 5 year GIC rates hovering around 2.5%, it was easy (for me at least) to know that this was some kind of scam. Unfortunately, there are people out there that will read this type of flyer and think it must be true. Remember – if its sounds too good to be true, it probably is.

The second flag should pop up if any “advisor” requests that you make out the cheque to them personally or their own company. An investment should be made directly to the financial institution (preferably a large, well known one) and the advisor should receive their compensation back through the proper channels.

A third flag that should alert you to trouble is a lack of transparency. Every aspect of investing, whether it’s in stocks, real estate, mortgages or other should be completely transparent and you should be able to get information on all aspects of the investment. If you find yourself unable to get answers to any of your questions, find out why.

When selecting an investment advisor, it helps if you pick one that carries a designation such as a Certified Financial Planner (CFP). CFP professionals must adhere to a high fiduciary standard that is enforced by the Financial Planning Standards Council and the code of ethics requires that they participate in regular ethical continuing education. Don’t just take someone’s word that they have this designation, ask to see their certificate.

Finally, make sure the advisor you’re considering is actually licensed in the province and type of investment you’re considering and that they haven’t been under any type disciplinary proceedings.

You’ve worked hard for your money and want to see it grow in your investment portfolio. A few simple steps and a little common sense can go a long way in helping to protect yourself and your future. When in doubt, ask questions!

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