Ponzi Schemes Targeting Seniors

You’ve probably heard the term “Ponzi scheme”; it’s an ubiquitous phrase in (and out of) the investment community. But do you know how to spot one? Ponzi schemes may be dressed up with fancy tricks and smoke-and-mirrors, but at their heart, they are all based off the same formula. But your age doesn’t have to make you a target. If you’re a senior investor, there are resources out there to help you recognize and prevent investment fraud targeted toward you and your savings. In April, the SEC brought several charges against a company it alleges conspired in investment scams targeting seniors. All of the schemes involved some variation on a Ponzi scheme.

Lifepay, LLC

In April, the SEC brought a complaint against Lifepay Group, LLC, alleging the firm’s principals defrauded investors out of a total of nearly $3.8 million dollars in two separate scams. The SEC’s complaint outlines allegations that the founders of the retirement planning and real estate investment services firm promised elderly investors high returns on baseless claims. In an even more egregious case, the SEC alleges that thousands of senior investors lost out on their retirement savings through a Ponzi scheme perpetrated by the Woodbridge Group of Companies, LLC.

Woodbridge

The South Florida-based group duped thousands of retirees through a widespread advertising campaign promising high returns. The SEC’s complaint states that Woodbridge affiliates promised revenue returns from high-interest loans while actually just using investors’ capital for personal expenditures. New, incoming investments were then used to pay off initial investors. In total, the SEC complaint values investment losses of $1.2 billion.

Just because you’re a senior investor, that doesn’t have to make you a victim.

There are ways to protect yourself and your investments from fraud and threats to your retirement savings. If you educate yourself to the dangers out there, you can learn tips for protecting yourself against investment-loss. Ponzi schemes may posit an investment risk, but they all follow a basic formula. They have tell-tale signs that, with the right eye, you can spot. Here are five ways to spot investment fraud ahead of time so you don’t end up falling victim to a scam.

5 Ways to Spot Investment Scams

Beware of Unlicensed or Unregistered Agents

Anybody handling your hard-earned savings better be qualified to do so. Unfortunately, a lot of investment fraud targeting seniors is done so through unlicensed advisors and brokers. Always make sure you verify the background and credentials of anyone claiming to offer financial advice or an investment opportunity. It’s easy to check whether your financial advisor or stock broker is properly licensed and registered:

• Visit Investor.gov to check their free database of registered investment professionals

Don’t Fall for Offers of High Returns and Low Risks

It’s easy to see why these types of scams still exist; it’s hard not to fall for the offers that seem to good to be true. But stay vigilant – investment opportunities promising big returns with little risk are the sirens of the investment world; they’ll lead you down the primrose path and leave you hoodwinked. An easy out: just remember that if it sounds too good to be true, it probably is.

Never Feel Pressured to Buy

Your savings and assets are yours; it is your decision how and when you choose to invest it. A poor sales tactic – and one often used by those trying to scam you – is to corner a consumer; to rush their decision to commit. Never let anyone rush you into an investment decision. In fact, if you feel pressured by anyone to act prematurely on an investment, this should be your sure-fire sign to run for the hills. Any investment professional with integrity will allow you the time to research and investigate any potential opportunity before committing.

There is No Such Thing as a Free Lunch

Gifts and gimmicks are often used by scammers to ply investors into committing to their scheme. Cheap tricks like free lunches are used to lure investors into bogus sales opportunities.

• Treat ‘free meal’ investment seminars the same way you would a “free lift-ticket offer” when you go skiing.

If you’ve been on a ski vacation think about the time-shares that offer you a free lift ticket for attending a quick seminar about their resort: you only go for the lift ticket, not the time-share. No matter how great the investment might seem – or to what lengths you are wooed, you should not agree to anything without proper due-diligence.

Know the History and Background of Your Investment Professional

When choosing an investment professional to handle your retirement savings, you need to have a strong understanding of their professional background; you need to know that you can trust them with your investment. Even if they’re properly licensed, they could have a history of issues that could spell trouble in the future. Here are some common things you should find out before aligning yourself with an investment professional:

• What is their work history? Have they been employed at any firms that have faced regulatory scrutiny or sanctions?
• Have they experienced a personal bankruptcy?
• Has there been a previous termination from another firm? Why?
• Have they been subject to a review, either internally by an employer or externally by regulators?
• Are there a lot of consumer/investor complaints about them?
• Do they have a transient employment history?

Some of these questions may seem personal – and they are. You need to have absolute certainty that your investment professional has the integrity and capacity to handle your savings.

Additional Resources

While these tips can be a great resource to help you spot scams targeting your nest egg, it’s not a comprehensive one. You can check out more tips and resources for protecting your investments on our blog. If you have questions about investment-loss recovery due to fraud or stock broker malfeasance, contact us.

Understanding Wrap Fees

Wrap fee programs sound like a great idea, and they are – for some. When considering a wrap fee program, you’ll first need to determine what you’ll actually be paying in wrap fees. Investment advisers and firms like to push sponsored wrap fee programs onto investors with the claim that bundled services make the investment process easier. They offer investors a one-stop-shop for managing investments and wrapped fees means easy payment. However, wrap fees may end up being more costly than a la carte services. Depending on your investment goals and activity a wrap fee program may not be the right choice. If you’re approached by your adviser with a wrap fee program, consider the services you currently use. Make sure you have an understanding of what fees and services are contained in the wrap fee program. All wrap fees offer slightly different services and fees, so understanding what’s in them is essential. Depending on your portfolio and needs, wrap fees may end up costing you more for services you don’t even need.

Here’s a tip:

Wrap fees are typically based of the value of assets. For accounts with frequent trading a wrap fee program can be a great option if it covers transaction fees. However, if you don’t have frequent trade activity and/or your transactions aren’t subject to a fee, a wrap fee program could actually end up costing you more. Of course, this only serves as a general rule-of-thumb. You will need to consider access to all the other services a wrap fee program offers. It is essential that you understand all the services and fees tied to your wrap fee program. Unfortunately, some advisory firms attempt to take advantage of investors by improperly disclosing or falsely advertising costs and services for wrap fee programs. If you want more info on wrap fees and typically wrap fee program services, check out this SEC Investor Bulletin.

What is Robo-advising?

We’ve talked before about using robo-advisors to facilitate trading and help investors organize portfolios, but here’s a quick recap: robo-advisor services are billed as low-cost, user-friendly systems that encourage first-time and novice investors to take a hands-on approach to growing their investment portfolio. Robo-advising allows investors to make investment decisions and transact deals via automation (meaning little to no interaction with a human advisor).

The Wells Fargo ‘Intuitive Investor’

Wells’ robo-advising plartform, dubbed ‘Intuitive Investor‘, is the 3rd automated platform offered by a major Wall Street brokerage. Bank of America and Raymond James Financial both launched their own services earlier this year. Intuitive Investor allows first-time investors to begin with relatively low capital risk and comparatively low commissions. Opening an account requires a minimum $10,000 investment and offers advisory fees at a half of a percent annually.

Tips if you’re considering opening a robo-advising account:

While robo-advising does offer you more individual oversight and control over your investments, that also comes with an increased responsibility to practice smart, secure investing. Automation can be great, but an increased reliance on computers for file storage and transaction comes with increased risk of cyber attack. It’s even more important for you to closely track your portfolio and transactions if you’re going to use a robo-advisor. Contact your brokerage immediately if you notice anything out of the ordinary in your account. Depending on your investment goals, it may also be in your best interest to maintain the services of a traditional investment advisor for either part or all of your portfolio.

Investor Resources

For more info on managing your portfolio using a robo-advisor, check out the SEC’s full investor bulletin. Read more about Wells Fargo’s robo-advising platform here.

Or Litecoin?

Or Dash?

What about platforms like Ripple or Zcash?

A New Frontier

Cryptocurrency investing has risen from an underground, financial trading outpost for techies to a full-blown investing phenomenon. Cryptocurrency has emerged as an innovative and major trading platform. However, the rapid rise and deeply technological nature of this type of investing has left it a largely foreign concept to many traditional investors. In fact, cryptocurrency is very much a new frontier, even for those familiar with it. While cryptocurrency investing can be an exciting new platform, the industry around cryptocurrency is still establishing itself. As a recent Reuters article reports, cryptocurrency investing is still very much a Wild West for investors. Sufficient, standardized regulation really has yet to take hold, and with the diverse array of available cryptocurrencies, it has proven difficult to police. If you’re considering cryptocurrency investing, you should not let potential risks deter you. After all, any investment type comes with risks. What’s important to remember is to practice smart investing. There is a learning curve, but if you practice smart investing and take proper measures to protect your investments, you can safely mitigate those risks.

Tips for Safe Cryptocurrency Investing

• Familiarize yourself with the cryptocurrency marketplace
  • Understand basics of investing and trading
• Research available cryptocurrencies
  • Cryptocurrency varies widely in terms of how it is designed, distributed and exchanged
  • Available offerings differ in terms of traceability, anonymity and security
• Research and verify trading and exchange platforms
  • Don’t lose your investment to fraudulent traders or fake exchange platforms
  • Make sure you’re trading on a secure and verified platform

Investor Resources

You can read the full Reuters special report on cryptocurrency exchange risks here. If you’ve been approached with an investment opportunity for an Initial Coin Offering (ICO), check out our past post on what to know before investing in an ICO.

It never hurts to seek out investing advice. Even the most experienced investors get investment advice, either from a single investment adviser or a trusted group. The key term here is trusted. If you’re considering opening an investment advisory account, it’s important to choose the right one.

Choosing the Right Investment Adviser

An investment adviser should serve as a trusted sounding board providing investment advice that is most in-line with your investment goals and strategy. As such, it’s important to go over these objectives with your potential adviser; don’t be afraid to ask questions. You should never be intimidated or feel pressured by an adviser or advisory firm. When choosing an investment advisor, be up front about your needs. Here are some common things you should address when considering any investment advisory account:

• Communicate your investment goals:
  • Set investment timelines
  • Discuss limits and risk tolerance
• Set service expectations
• Discuss associated costs and fees

These are just some of the fundamental things you should cover with any potential investment adviser. You should always come prepared with questions of your own that are tailored to your specific investment goals. After you have found an adviser you feel you can trust, make sure you understand your advisory contract. Although an adviser or firm may be the right fit for your investment needs, advisory contracts can be complex; outlining costs and fees for service, communication between you and your adviser and other terms and conditions. Before signing an agreement, make sure you go over any questions you have with your investment adviser. Common things to look for and consider are:

• Level of service
• Fee breakdowns and calculations
• Your responsibilities as an investor
• The responsibilities of your adviser
• How to communicate with your adviser
• Contract cancellation procedures

Investor Resources

These are just some easy tips to help you choose the right investment adviser. For even more helpful advice check out this SEC bulletin.

What is robo-advisor investing?

Automated investing platforms, also known as robo-advisors, allow investors to make investment decisions and transact deals with little to no interaction with human advisors. By completing online questionnaires outlining investment goals and financial information, these systems compile and manage portfolios for investors.

Why use a robo-advisor investing platform?

• Directly manage your investment portfolio
• Lower cost alternative to traditional investing
• On-demand deal transaction

When not to use a robo-advisor

Robo-advisor investing may be a great alternative for some, but it may not be the best option for every investor. Depending on your particular investment goals and needs, a traditional investment advisor may be a better fit. Robo-advisor investing can only operate based on personal and financial information provided. Therefore, it can only advise and suggest deals in a limited capacity. Traditional advisor can take a more nuanced approach to your portfolio. Also, as an economical alternative, robo-advisors offer low-cost investment advice. It may not offer truly high-value advice like a human investor might be able to.

Investor Resources

• To view the SEC’s full robo-advisor investor alert, click here
• Check out our blog archives for even more tips for safe investing practices