Today I want to address those of us that have chosen the advisory profession as well as those who seek professional advise. The current environment has created the perfect scenario for scammers to attack a fragile niche; the retirement market. With 10,000 baby boomers turning 65 every day it is an attractive niche for them to target. According to a recent study by Metlife, elder fraud is a problem of approximately $3 billion per year. These scam artists prepare their sleek marketing materials and spoon feed these information to the untrained financial advisors, who then presents this information to their clients causing not only damages to thousands of families, it also destroys professional careers.
Due to the decline in asset values that many of the baby boomers have suffered in their retirement accounts in the past few years, they have an urgent need to catch up in their financial plans. This is understandable and provides the opportunity for predators. Also, poorly trained financial advisors feeling the need to bring new products/alternatives to their client fall victims of these well trained predators.
The problem we are encountering is that many of these non-traditional investments are unregistered products. They come in different shapes and forms, however the main goal is to create the illusion of legitimacy. Some examples of these unregistered products are:
1. unregistered limited partnerships
2. hedge funds
3. oil & gas deals
4. real estate products
Some times above products are legitimate and well founded. However, the investment decisions should always be made on a sound analysis of the investment potential. As financial advisors, extensive due diligence must be performed to ensure that the products being presented meet the risk assessment and financial plan of the clients. Financial advisors must not think that they are "too smart to fall for anything like that". Financial advisors must exercise a healthy level of skepticism. If the financial advisor starts from the premise that these guys are legitimate, it takes almost no effort for them to confirm the "legitimacy" of the products being presented. Financial advisors must start from what I call a healthy level of skepticism; start from the basis that this could be a scam, then perform due diligence and leave no rock unturned and if after looking under all the rocks the financial advisor cannot find evidence of fraud, then and only then we can feel that the deal is OK and could be presented to the appropriate clients. Furthermore, it is important that you as the client of the financial advisor be comfortable with the understanding of the products by your financial advisors. Is He/She well prepared on the subject matter? Does the company that they represent have a solid background? Has your financial advisor performed sufficient due diligence on the opportunity/product before being presented to you? Is your financial advisor keeping up with the required training? With clients still wincing from the declines of 2008, faith and trust is running low. While there are benefits to alternative investment programs, they should only be implemented after performing diligence to ensure the trust of our clients bestowed in us continues to be well deserved.
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