How to Avoid a Ponzi Scheme

You worked hard for your money, and deserve security and honesty when investing it. The sad truth is, there are numerous people out in the world willing to lie and deceive in order to get your money. Ponzi schemes are just one way fraudulent individuals try to cheat honest people out of their money.

However, don’t let the threat of a ponzi scheme frighten you from taking a chance and investing your money, there are ways to check and ensure you’re not being had before you choose to trust an investor with your money.

Anyone can just refer to themselves as a financial planner or advisor, and making sure they’re legitimate is the first step to ensuring they are who they claim to be.

Check with the Financial Planning Association, National Association of Personal Financial Advisers, and the Certified Financial Board of Standards and their searchable databases for information on the person you intend to trust with your investment.

The next step is to dig even deeper and learn more about the person. The Securities and Exchange Commission carries a copy of every investor’s ADV form, Part II; which contains all information about the investor’s services, fees, and background. Check for complaints or charges filed against the investor and be sure to visit any website associated with them, it never hurts to double check against all possible sources of information.

There’s a definite difference between an investment manager and an investment custodian. A custodian has full control of your investment and issues periodic statements about transactions; a manager simply executes transactions on your behalf.

The two functions should never be in the power of one person, and knowing when to keep them separate is paramount to smart investing. Ensure you receive quarterly statements and never give an advisor power to control transactions involving your money.

Being skeptical of exotic or obscure products or services from the investment company can help you avoid a ponzi scheme as well. Planners, brokerages, and banks have a wide range of financial products and services they offer, and ponzi schemes take full advantage of it. If you don’t understand it, don’t be a part of it; avoid pitches for asset classes you’re unfamiliar with and don’t understand the process of. If it’s not a transparent transaction, it’s usually best to avoid it.

Finally, if you’re near or entering retirement, take extra care when checking a financial advisor. You’ve worked hard all your life for this break, and a ponzi scheme shouldn’t take it away. If you’re offered returns that seem unbelievably high, then the warning bells should already be sounding.

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