How to Protect Yourself From Scam Artists

This list can be endless, but here are common ways many investors get sold on a fly-by-night investment scam.

• Never give any investment advisor a general power of attorney over your account.  Use a limited power of attorney to authorize your advisor to make trades within your account for your benefit.  There is never a reason to name an investment advisor as owner, contingent owner, or joint owner of your account.  It shouldn’t be possible for any other person to ever receive a disbursement from your account.  Your brokerage or trust company should only disburse to you at your home address or to your bank account.  Insist on confirmation of all account activity (this may not need to be sent to you by paper), but easy access to all transactions online should suffice.  Never use your investment advisor’s address as your address to receive statements.
• Select strong custodians for safekeeping of your assets.  Use major brokerage houses or trust companies that are properly insured, audited, and regulated.  Don’t let some Jabba The Hut, little financial institution act as custodian of your assets.
• Remember that if it sounds too good to be true, it probably is.  Con artists almost universally appeal to investor’s greed and unrealistic expectations.  They can’t exist without gullible people willing to believe the unbelievable.  By now you should have a good feel for the range of reasonableness in various investment markets.
• Consider carefully whether you need a guide.  Many investors shouldn’t try to go it alone.  Investing professionally is a full-time job.  It takes specialized knowledge and significant resources.  The field is rapidly evolving.  It takes a great deal of time just to keep up with the research.  Evaluate whether you have the skill, judgment, discipline, and experience to do a proper job.  Your investment plan is your future.  It’s too important to leave to amateurs.  Just because you’ve read some book on how to perform surgery does not make you a surgeon.
• Avoid commission sales.  All financial professionals get paid.  And, of course, all of them have an interest in attracting your business.  You can’t expect any of them to send you to the competition.  How they get paid, however, can have a very significant effect on the nature of their recommendations.  In fact, how you pay for advice may be much more important than how much you pay.