Beware of Investment Scams!

Nearly a decade after Bernie Madoff, Americans are still losing their life savings to Ponzi schemes.

It is difficult for ordinary investors and savers to identify swindlers and conmen. PBAdvisory can help you with due diligence and allow you to follow the old principle: Investigate before yu invest! It is surprising how often investors neglect to conduct the most basic background checks before parting with their hard-earned money.

Marketwatch

More important than ever that YOU monitor Advisers

Relying on good faith or protection by regulators is not going to do the job in the future!

Trump firing of Bharara leaves void in fight against corruption and Wall Street crime

Market Professionals at an advantage

Any Retail Investor, small or of 'high net worth' should watch the activities of investment professionals like a hawk. Market Insiders always have an information advantage that can allow them to charge higher fees or find excuses for under performance. 
The Dirty Little Secret of Finance: Asymmetric Information (Bloomberg)
Information asymmetry: Secrets and agents (The Economist)

14 Questions to ask your Financial Adviser

Not all of these questions can be answered easily and detailed analysis may be required, but they are a useful start when looking for an Adviser.

Integrity in Fund Management

"...from the investor's point of view, the integrity of their fund manager is an essential matter of interest, but one which remains extraordinarily difficult to measure or to judge." (Financial Times, 'The temptation of the fund managers' by Jonathan Davis).

Should you check the lifestyle of your Financial Adviser?

Two recent cases involving multi-million investment scams have both highlighted the expensive lifestyles of the main promoters. This raises the question if investors would be well advised to conduct a background check on the personal life of any current or prospective investment adviser. I would tend to say yes as the time when you could rely on self-restraint as demonstrated by the legendary old school Swiss Private Banker are long gone. Ostentatious lifestyles that involve million-dollar birthday parties where rock stars serenade the guests and over-the-top spending on art or property should always flash red warning lights.
See also 'Long jail terms for three fraudsters in £85 million boiler room scam' (Daily Telegraph)

Warning Signs of bad Financial Advisor

A useful summary of warning signs is given by Suze Orman (CNBC)

• The advisor rushes you into making decisions
• No clear information on costs and fees is provided
• Your investments are not sufficiently diversified
• The advisor wants to exclude your partner(s) from meetings
• Your requirements and personal circumstances are not discussed
• Your questions or concerns are not properly answered
• Statements are not informative or do not arrive regularly
• You receive no regular quarterly and annual reports
• The advisor wants to have direct access to your money and account
• You are not kept informed about important developments

An interesting article on the same subject:

Is Your Money Really Safe With a Financial Adviser?

Even arbitration no protection for investors

This case demonstrates that investors should not rely on securities arbitration for his protection as providers of financial services use every legal option to delay or void such an award. The reader can form his own judgement about the morality of such conduct.

Don't rely on regulators alone for your protection!

When firms point out that they are regulated you should not blindly rely on this as your primary source of protection. Regulators are created by politicians and are often (too?) close to the industries they are supposed to police. (Bloomberg)

How safe is your (US) Futures Broker?

Atlas Ratings is worth checking if you are nervous because of the failure of US brokers during the past year. You certainly do not want to rely solely on regulators.

Minneapolis Doctor is defrauded in $7 Million Scam

Just another example illustrating that due diligence is essential when selecting a money manager. Full Story here (StarTribune)

Do not put too much faith into investment gurus!

The only information you should rely on is your common sense, your own investment research or investment advisers with a strong track record that pass a thorough due diligence process. Beware of investment gurus in the media or the finance profession.

Private Banker diverts Sfr 1.5 million and escapes jail!

The selection of an trustworthy financial adviser is of the utmost importance. While no customers of the bank in question have lost any money the case case should still set alarm bells ringing. When the director of a bank can escape a prison sentence even after he admitted that he 'diverted' Sfr 1.5 million from commission payments to his own accounts the sentence demonstrates that crimes by banking and finance professionals are still not punished in the same way as crimes by 'ordinary' criminals and investors should be extra careful when selecting a financial adviser. That the banker in question enjoyed a basic annual salary of  Sfr 240'000 and at one stage received an annual bonus of Sfr 816'000 is proof for the extent of his greed.

How much should you rely on a prospectus?

We always advise against excessive reliance on written marketing material. Glossy brochures can be deceiving and should not divert the investor's attention from the crucial aspects of safety and performance. The same can also be said for impressive premises, fancy conferences and well-tailored suits worn by your financial advisers. But some clients may think that a formal prospectus, seemingly approved by the regulators, may be in a different league and give an official stamp of approval on the investment product that is suggested to be put into a portfolio. A recent court judgement in Austria gives a warning in this respect. The regulatory authority there stated that while it checks the formal correctness of an investment prospectus it does not verify the actual facts that contained in it.

How safe is your money?

We are here not talking about how your investments do but whether or not your investments, your money, are still safe in an account where they are supposed to be. Very few readers will store their fungible wealth at home, in a safe or buried in the back garden. While property should be reasonably safe - at least until governments confiscate it or tax it away - most other assets are nothing else but book entries in some computer and linked to an account with a bank, insurance company, investment fund or asset manager. News that one of the major exchanges did not detect that the regulations about segregation of customer assets were not followed by MF Global is a warning sign. Investors must not be seduced by posh offices, glossy marketing brochures or gregarious personalities into neglecting the more boring - but essential - aspects of money management.

UCITS III Hedge Funds - don't be blinded by the label

Ordinary investors already have enough trouble understanding what hedge funds do, how they are structured and what risks they face when investing in them. So the well-meaning improvement in transparency that regulators and their political pay-masters have intended by releasing the new UCITS III regulations may well be lost on ordinary mortals. But the danger is that a new label can blind investors to the still substantial risks hidden in hedge fund structures as these funds are more lightly regulated than ordinary investment funds. The recommendation by market insiders that investors just have to be more careful and do more analysis of risks is missing the point as the recipients of the advice are simply not able to do this sort of analysis. Using advisers instead just means pushing the can down the road as one risk is substituted by another one: now the investor is supposed to know which adviser to select and basically to put his trust in him and hope for the best.

Do not blindly rely on regulators!

Investors are advised not to blindly rely on the fact that a financial services firm is regulated by some official institution such as the SEC in the USA or the FSA in the United Kingdom.While these two organisations may have somewhat sharper teeth than their mostly tame equivalents in other jurisdictions it does not mean that being regulated by them is an official seal of approval. The same can be said for any diploma, membership in a professional organisation or academic or other qualification the financial adviser may exhibit. One could even say that the more these are put into the foreground the more suspicious any potential customer should become as it may be a promotional tactic that is intended to impress and put wool over the eyes of the prospective client. Large organisations such as the 'universal' banks may appear to be safe at first glance but in their case they may trade too much on the belief that they are too large to fail. While they may indeed be safer in a moment of crisis that should not divert anyone from closely analysing their performance record.

Lunatics running the asylum?

This expression comes to mind when reading the judgement concerning the repackaging of a repackaging of notes that represented an interest in an investment fund. Anyone who thinks that the activities described in the judgement represent more than a pass-the-parcel round trip designed to harvest fees at every stop at the expense of (which?) real investors may well be the right candidate to be sold in-transparent investment products in the future. Anyone who scratches his head and asks: 'What does all this have to do with sound long-term investment?' is well advised to be wary of overcomplicated investment vehicles and scrutinise the costs and risks associated with his investments very carefully.

Don't mess with 'J.R.' - Larry Hagman wins arbitration case

News that actor Larry Hagman has won an arbitration award against the employer of his former financial adviser illustrates the importance of supervising the activities of any adviser. In this case Hagman and his wife were sold an expensive (and possibly unnecessary) investment 'product' and their portfolio was subjected to substantial turnover which implied a high level of fees and commissions. The case also illustrates that is is not enough to rely on the image/reputation of the employing bank or fund manager - sponsorship of sports or cultural events is no substitute for performance. Careful vetting of any new adviser should also be conducted and include the use of references and all other available information.

Operational Risk often neglected

Most investors are focused exclusively on the quest for securing the best financial return on their investments. But recent developments have highlighted the need to ensure the safe return of the investment. Several prominent banks have been found wanting in protecting the confidentiality of client accounts held by their Swiss Branches. While no money was reported to have been lost as a consequence the fact that client records could have been transferred to a CD and the information offered to governments in surrounding states should set alarm bells ringing among investors. If it seems to be easy enough to steal customer data it may not be beyond some criminal mind to transfer money from client accounts. Clients are advised to conduct thorough due diligence on the operations of any bank or money manager they entrust their investments to. Slick advertising, tips from advisers or friends should not be the sole basis of picking a firm.