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Personal Finance: Sound Too Good? Hide Your Wallet

Personal Finance: Sound Too Good? Hide Your Wallet

Claudia Buck

“People are afraid right now, … so if they get approached by something that seems risk-free with a guaranteed return, it seems very appealing,” Baker said.

And almost anyone can be susceptible.

Here’s how to avoid getting trapped by investment fraudsters.

Ask and check

Before signing up with any investment professionals, check to be sure they’re licensed and the product they’re selling is registered. It’s relatively easy at Web sites such as the Financial Investment Regulatory Authority (FINRA), the U.S. Securities and Exchange Commission (SEC) or your state securities regulator. At FINRA’s “BrokerCheck,” for instance, you can look up individuals or firms to check their licensing and history of complaints and compliance.

“We have a database of 500,000 brokers and nine of 10 have no black marks on their records or compliance problems,” said FINRA’s Gannon.

But, he warns, don’t be fooled by impressive-sounding titles on a business card.

There’s at least one designation — a “certified adviser for senior investing” — that FINRA says is completely phony but has been used by unscrupulous investment peddlers.

“Anybody can be a self-proclaimed expert. Just because someone has a number of letters behind their name, doesn’t mean they’re licensed,” said Gannon.

Beware of ‘affinity fraud’ It’s the friendly guy you know through your church or synagogue. Or someone you’ve met through a cultural group or a connection at work. They’re selling something — annuities, real estate deals, insurancebacked investments. And because you have a natural “affinity” with the person, you drop your guard.

“A lot of investors are their own worst enemy because they don’t do their due diligence,” said Jack Waymire, who runs two investor education Web sites, paladinregistry.com and investorwatchdog.com from Lincoln.

With any investment pitch, consumers should request a written prospectus detailing the risks and returns, then seek a second opinion from a qualified outsider.

No ‘free lunch’

The invitations to a free meal in a fancy restaurant or hotel typically arrive in the mail. They’re billed as educational seminars on financial topics, and they’re all too common. In a 2007 survey of investors ages 60 and over, FINRA found that nearly 60 percent of respondents had received six or more invitations to a “free” investment lunch or dinner in the last three years.

As FINRA noted: “If you haven’t been invited to a free-meal investment seminar yet, you likely will be.”

There’s nothing inherently wrong with this type of sales approach, but investors are advised to be skeptical and ask lots of questions. To avoid the hard sell, here’s more advice from investor education experts:

Before you attend, do your homework. Check to be sure the individual and the investment product are licensed and registered.

When you walk in the door, don’t be swayed by a well-dressed speaker and a fancy restaurant setting. Be wary of sales pitches with confusing comparisons or misleading claims about the performance and returns.

Don’t be pressured by any “urgency” that you must sign up immediately to get a prize, a lowered commission or a one-chance “opportunity.”

And don’t purchase anything until you’ve done your own research or talked with another qualified professional.

Bottom line

With any investment you’re considering, ask questions:

What are the risks? What’s the return? How liquid is it (meaning, how easily can I cash out if needed)? What are the surrender fees if I decide to sell?

Smart investors don’t let themselves get rushed into risky investments. To avoid Madoff-like misery, there’s one classic adage that never goes out of style: If it sounds too good to be true, it probably is.


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