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 by Eve Kaplan, CFP(R) Practitioner

“Out with the old and in the new” – so the old adage goes at the start of each year.  I hope 2014 will bring even more clarity and transparency to the financial planning and investment world so the public is better informed and better protected.

Grand Theft, Ponzi-Style:

We recently passed the  5th anniversary of Bernie Madoff’s arrest. In one fell swoop, Madoff changed the recent American investment landscape by perpetrating a staggering  $60 billion theft over a period of decades. Or did he change the investment landscape?  While the scale of Madoff’s deception is hard to duplicate, smaller Ponzi schemes are uncovered on a regular basis.

Here are some obvious Ponzi scheme warning signs to be alert for:

  1. Investment returns are too good to be true (but you want to believe them anyway…). Returns are high, steady and appear to carry no risk.
  2. The investment methodology is too difficult or convoluted to follow (just like a shell game when the magician repositions the shell hiding the pearl).
  3. Documentation is spotty – there is no independent custodian housing your investments and you can’t verify the investment statements your investor gives you.
  4. If you do a little digging, you find auditors you never heard of.
  5. See if your investment advisor is registered with any government regulatory agency: or  (Note: the Bernard L. Madoff Investment Securities LLC firm was still registered with the SEC as late as 2012, so this particular “smell test” does not always work).

Clarity About Fees:

It’s your money, so why be shy about explicitly asking your advisor how he or she is paid? (You would not buy an expensive suit or dress without knowing what it cost!). And ask how much each investment costs – before and including any fees your advisor may have tacked on in the form of commissions.

Become informed about the “F” word (F for “Fiduciary”). A Fiduciary is someone who upholds your financial interests before his or her own.  Investment advisors who mix advice giving with product sales cannot easily fulfill their fiduciary obligations to clients – but “Fee Only” advisors can.

The Certified Financial Planner Board controls use of the “Certified Financial Planner” designation and governs all requirements to fulfill use of the “CFP” mark. In Autumn 2013 the Certified Financial Planner Board began using clearer language to describe financial planners listed in its “Find a CRP® Professional” search engine.  The compensation method advisors use now is clearly described as “Commission and Fee” if the advisor sells commissioned products – instead of calling these advisors “Fee-Based.” 

Make 2014 your year for financial clarity about the investment advisors and planners you engage, how they are paid and what you are invested in. Warm wishes to all of you for a healthy and happy 2014!

 (C) Copyright Eve Kaplan, 2013. All Rights Reserved.