Are you concerned by the real possibility that you could be scammed? No? Not even a little?
It’s natural for us to think and feel that we could never be scammed. We’re just too smart to fall victim to the scammers. Or maybe we believe that most people are good and we can tell when they are not.
These are exactly the over-confident assumptions made by Bernie Madoff’s victims. Fortunately, Madoff was caught and is in jail for life. And 5 of his ex-employees went on trial this week for being part of his fraud. But his victims will never recover the billions he scammed from them. Sadly, many lost every penny!
Equal Opportunity Scams
You will encounter many occasions that give you an equal opportunity to be scammed:
- The sweet friendly voice on the phone telling you that your credit cards need updating, so please confirm your information.
- The innocent mail invitation to a lunch or dinner where you’ll hear the latest on how to save “a ton” on taxes or have a guaranteed great retirement.
- A financial product that can give you the guarantee that you won’t lose any money and still make terrific gains.
- That “friend” who boasts about all the extraordinary profits from their “genius” financial advisor (ala Madoff Ponzi scheme).
Sound familiar? We’ve all gotten these calls, letters, and invitations that are designed to separate us from our hard-earned savings. And they will keep coming, especially as you get older and the scammers find out from many paid and public sources that you have money (for example, government databases on home ownership and mortgage balances).
We all have visible and hidden emotional buttons, like (1) the need for security or guarantees, (2) the desire to get ahead or make gains, and (3) the need for attention from our relationships that give us love and happiness.
Scammers are experts at pushing any or all of these emotional buttons to gain our trust. They take advantage of that trust with their schemes, causing us to suffer the emotional pain of violation and leaving us with the pain of financial ruin. You don’t have to take my word for it — just look back at the devastation caused by famous scammer Bernie Madoff. You can search the internet and find many sad stories (and even books) written about his victims, both regular people like us and those who are “celebrities.” And American Greed shows new and creative ways that other scammers are using to cheat people out of their money.
How to Avoid Scams
You don’t have to become a victim. Here are a few essential rules to avoid being scammed:
- Hang up on all robo calls and cold calls. Period.
- Never make a commitment on the phone – even with a charity. Tell them to send you information and let them know that you never make commitments on the phone. Never give out your credit card information or social security number to someone you don’t know well or trust! No exceptions!
- Search for and engage truly capable, objective, and licensed financial advisors with whom you can develop a long, trusting relationship (examples: a lawyer with financial expertise and/or CPA with investment experience would be good). Why engage more than one advisor? Because you need balanced advice in case one of the advisors is not competent or worse, a “secret scammer.” Take a lesson from many of Bernie Madoff’s victims – their own personal financial advisors actually led them to Madoff’s schemes, because those advisors were incentivized by Madoff to sell the “benefits” and ignore the “negatives”!
- Separate the money manager roles by using different trusted sources to (a) make the investment decisions, and (b) hold your money (act as custodian) and report the activities in your accounts. You can also hire an independent auditor to audit your accounts. For example:
- Hire several money managers who are not affiliated with any brokerage firm.
- Use well-known and established discount brokerage firms (examples: Fidelity, Schwab, E*TRADE, and more) to hold your accounts and to report all the activities.
- Ask for an independent audit of your professionally-managed accounts each year.
- Learn, learn, learn. You are never too young or too old or too smart to learn about personal financial matters. There is an overwhelming amount of free objective information available (for example, on MSN Money, AOL Daily Finance, Yahoo! Finance, and more). Start now. Yes, read our blogs, but read other blogs too. The information in our InvestBetterSpendSmarter.com (IBSS) posts is a good place to start, and you may avoid becoming the next victim of a scammer.
Always remember this:
“Trust must be earned, not stolen through emotions. Make them earn your trust with facts, evidence, and proof you can verify with objective sources.” Jim Tso, November 2013