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Sound too good to be true? It probably is.
You hear advertisements for personal finance seminars on radio and television, and you probably get pitches in the mail. Many of these courses offer valuable educational information that can help you learn new ways to invest and plan for your financial future. However, those that make outlandish promises of financial freedom are typically run by scammers. And the smarter individual investors become, the craftier and more creative these people get.
For example, broker David L. McFadden recently lured 32 long-term employees of Exxon Corp. into a fraudulent scheme that cost them much of their retirement savings. In a seminar, McFadden allegedly convinced these near-retirement employees that they could cash out their 401(k) and pension plans, turn over the money to him, and generate enough income from their new investment accounts to replace their current salaries.
He failed to explain the high risks this scheme would entail, and those employees who took McFadden up on his offer soon learned they couldn't withdraw the amount of monthly income he had promised them without depleting their principal. Many watched helplessly as investments they were counting on to last for years dwindled in the wake of market fluctuations. In addition, McFadden allegedly switched some customers' investments without their knowledge or approval.
Choosing the right seminar
How can you avoid getting caught up in such a scam? Knowing who the seminar presenter is and how he or she makes money will up your chances of making smart decisions.
Many seminars are held to solicit business. "If the seminar is being offered by a sales or marketing organization, such as a stock broker, insurance agent, financial adviser, or financial planner, the primary aim of the event is to solicit business," said Reed Fraasa, a certified financial planner with Highland Financial Advisers Riverdale, N.J. "No one is going to give anything away." Although soliciting business isn't necessarily a bad thing or a sign of evil intentions, not every offer is going to be a perfect fit for you. So even if the presenter is reputable, don't jump in and write any investment checks until you've done proper research and considered whether or not what they're offering is for you.
That said, if you're asked to pay a fee to attend the seminar, it's probably a good sign, says Fraasa. Fees are reasonable for an educational seminar or program offered through a local school, for example. But before you pay, Fraasa suggests, ask the presenter the following questions:
- What can I expect to learn from this?
- How many of these have you run in the past?
- What is the guarantee? (If I am not satisfied, do I get a full refund?)
- Do you sell financial products?
- Do you have a written disclosure of your business practices?
The fee alone is not a reliable indicator.
You can pay for sleazy conferences as well as good ones, says Christopher Cordaro, a certified financial planner with Regent Atlantic Capital in Chatham, N.J. "In the end, folks who run seminars are trying to get new clients. You have to look past the seminar to the adviser or individual who is running the show."
Even if the seminar is sponsored by a well-known mutual fund company, brokerage firm, or insurance company, the seminar presenter could be a rogue, warns Cordaro.
For this reason, it's best to leave your checkbook at home. Before you make any investment, be sure you've checked out the firm/representative and don't be pressured to rush into anything.
How to check out the adviser
Before you take a seminar or do business with anyone claiming to be a financial adviser, check for these warning signs:
- They promise huge profits or guaranteed returns in excess of 15 percent or more. No one can guarantee such high returns.
- They use pressure tactics, telling you you'll miss an opportunity if you don't hurry.
- They promise low- or no-risk investments. Other than an FDIC-insured bank account, every investment carries some kind of risk.
- You don't understand their description of the investment they are offering.
- The presenter asks for a Social Security number, credit card number, or bank account number. What do you think they'll do with that information?
- Find out if the person soliciting your money is licensed. If he claims to hold an insurance license, check with the state insurance commission. If he says he has a securities license, call the NASD at 800-289-9999 or visit the Web site at www.nasdr.com.
- Also check the person's record with your state securities division. Call the North American Securities Administrators Association at 888-846-2722 or go online at www.nasaa.org to find contact information.
- If the person claims to be a certified financial planner, check with the CFP Board of Standards at 888-237-6275 or visit the Web site: www.fpanet.org.
- If the person is charging a fee for investment advice, he or she must be an agent of a registered investment advisory firm. Ask for a Form ADV Part II disclosure document from your state securities department or the Securities and Exchange Commission (www.sec.gov). This is a standard regulatory filing required of all advisers, and it may provide important background information.
- Understand how the adviser makes money, whether it's from fees, commissions, or a combination. Be sure to check into conflicts of interest, such as if the adviser personally owns shares of a company he or she wants you to buy.
- Ask any person who wants to manage your money if he or she carries errors and omissions insurance, a form of liability insurance that should be carried by all financial advisers or their securities company. Get the particulars on the policy.
- Most investments involve setting up a custodial account. Be sure it is with a solid institution that carries lots of insurance in case the institution fails. Verify the account, and be very cautious of anything offshore. Look for confirmations on transactions within four or five business days.
- Beware of Internet fraud; verify everything you read or receive online.
- Always get referrals and background information on any person who will touch your money. Verify the information in a seminar presenter's biography before you seek his advice or services.
- Use good old common sense. As we said before, if it sounds too good to be true, it probably is.
How to check out investment recommendations
Once you decide an adviser is legitimate, you should be prepared to evaluate the investments he recommends. Here is a list of questions from the Securities & Exchange Commission that every potential investor should ask.
- Is the investment registered with the SEC and the state securities agency in the state where I live, or is it subject to an exemption?
- How does this investment match my investment objectives?
- Where is the company incorporated? Will you send me the latest reports that have been filed on this company?
- What are the costs to buy, hold, and sell this investment? How easily can I sell?
- Who is managing the investment? What experience do they have?
- What is the risk that I could lose the money I invest?
- What return can I expect on my money? When?
- How long has the company been in business? Are they making money, and if so, how? What is their product or service? What other companies are in this business?
- How can I get more information about this investment, such as audited
financial statements?
So are personal finance seminars all bad? Of course not. Could some advisors turn you on to a great idea for your financial future? Certainly. But any time your money is involved, be cautious, be smart, and remember that there's no such thing as a free lunch (or retirement!)
Related links
Securities and Exchange Commission (www.sec.gov)
National Association of Securities Dealers (www.nasd.org)
Federal Trade Commission (www.ftc.gov)
Certified Financial Planner Board of Standards www.fpanet.org.
