Scams & Schemes Archives - Page 3 of 4 - NorthStar Capital Advisors

20 People You Don’t Want to Invest With

Identifying what does NOT work is often a great process for narrowing your list of options of what you should do. In that spirit, here’s Ben Carlson’s list of 20 people you wouldn’t want to invest with:

1. People that are unwilling or unable to admit their limitations.

2. People that are consumed by ideological or political beliefs when making investment decisions.

3. People that are unwilling to say “I don’t know.”

4. People that don’t learn from their mistakes.

5. People that blame external forces for their failures.

6. People that are unable to effectively communicate their process.

7. People that make guarantees about the markets in the future.

8. People that are more interested in selling you a product than creating a beneficial long-lasting client relationship.

9. People that try to invest in the markets as they “should be” instead of how they actually are.

10. People that are more worried about what others are doing instead of focusing on their own process and goals.

11. People that take the markets personally and let their emotions drive their decisions.

12. People that assume “trust me, I got this” is good enough in terms of explaining their strategy.

13. People that believe in conspiracy theories and think the system is out to get them.

14. People that are more worried about sounding intelligent than actually making money.

15. People that obsess over the market’s short-term movements.

16. People that would rather take you golfing than help you solve your problems.

17. People that make you feel like they’re doing you a favor by letting you invest your money with them.

18. People that try to dazzle you with 200 page pitch books.

19. People that are more worried about gathering future clients than taking care of their current ones.

20. People that tell you what you want to hear instead of what you need to hear.

Source: AWOCS

Finance Needs an Ethics Class

A new report on the financial industry describes a very troubling situation.

A third of the people surveyed who make more than $500,000 annually claim that they “have witnessed or have firsthand knowledge of wrongdoing in the workplace.”
“Nearly one in five respondents feels financial service professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment.”
One in ten say they have been directly pressured “to compromise ethical standards or violate the law.”

More than 1,200 traders, portfolio managers, investment bankers, and hedge fund professional were surveyed.

Clearly not all financial professionals are unethical, but given the high degree of bad operators, we continue to counsel our clients and friends to ask good questions, be skeptical, and do your due diligence when making financial transactions.

Why the big broker behind your financial adviser might be working against you

A report released last week by the Public Investors Arbitration Bar Association (PIABA) pointed out nine big brokerages for advertising as if they are fiduciaries, but denying that standard and renouncing any requirement to avoid conflicted advice in private arbitration hearings.

Those nine brokerages are: Merrill Lynch, Fidelity Investments, Ameriprise, Wells Fargo, Morgan Stanley, Allstate, UBS, Berthel Fisher, and Charles Schwab.

Fiduciaries have a legal requirement to put client interests ahead of all others.

The report includes samples of misleading advertising from major brokerage firms AND the firms’ legal repudiations when their brokers are sued for losses caused by misconduct.

Allstate
Their advertisements say: “Your’e in good hands.”
Their lawyers say: “Allstate Financial Services owed no fiduciary duty to Claimants, and, therefore, no such duty was breached.”

UBS
Their advertisements say: “Until my client knows she comes first. Until I understand what drives her. And what slows her down. Until I know what makes her leap out of bed in the morning. And what keeps her awake at night. Until she understands that I’m always thinking about her investment. (Even if she isn’t.) Not at the office. But at the opera. At a barbecue. In a traffic jam. Until her ambitions feel like my ambitions. Until then. We will not rest. UBS.”
Their lawyers say: “[A] broker does not owe a fiduciary duty to his customer in a non-discretionary account.”

Merrill Lynch
Their advertisements say: “It’s time for a financial strategy that puts your needs and priorities front and center.”
Their lawyers say: “Respondents did not stand in a fiduciary relationship with Claimants.”

Morgan Stanley
Their advertisements say: “Having an intimate knowledge of blue chips and small caps is important. But even more important is an intimate knowledge of you and your goals. Get connected to a Morgan Stanley Financial Advisor and get a more personalized plan for achieving success.”
Their lawyers say: “Claimant’s claim seeks to impose ‘fiduciary’ obligations and duties on Respondents that only arise in very limited circumstances that do not exist here, i.e. where Respondents are given discretionary trading authority over Claimant’s accounts.”

The report succinctly summarizes this disparity:
“On one hand, the firms boast that they offer unconflicted, trustworthy advice while, on the other hand, those same firms argue they are little more than salesmen with a single duty: to execute trades in customers’ accounts.”

Sources:
MarketWatch
USN

I Can Teach You How to Time the Market [cartoon]

Morgan Stanley Advisor Leaks Data for 350,000 Clients

Morgan Stanley financial advisor Galen Marsh downloaded personal and sensitive account data for 350,000 clients of the firm. Essentially none of these clients were his own. A few weeks ago in December 2014, these data started showing up on Pastebin, a website popular with data thieves and other illegal operators. The anonymous data leaker offered to trade more data in exchange for a payoff in virtual currency. Morgan Stanley detected the breach, subsequently fired the 30-year-old advisor and the FBI has opened an investigation.

One startling aspect of this data breach is the seemingly weak information security at Morgan Stanley. One of the basic tenets of this space is “access control” — each employee’s access should be restricted to the data he or she needs to operate. In this case, Mr. Marsh should have had access to only the handful of clients that he supported, not 350,000!

Marsh admitted to downloading data for 350,000 clients but denies posting it online. Morgan Stanley is trying to understand how Marsh transferred the data offsite.

In response to this breach, Morgan Stanley reportedly tightened security to its client database, hired an outside call center to handle the surge of inbound calls from clients concerned about the breach, and is offering credit and identify theft services to impacted parties.

Source: WSJ

10 Truths Mutual Fund Firms Won’t Admit

“Cheap funds often outperform pricey ones.”
“We can’t beat the market.”
“When skill fails, we just double (or quintuple) our odds.”
“People aren’t buying our product…”
“…except when we pay them kickbacks.”
“Hedge funds are our idols.”
“Our boards are rubber stamps.”
“Blame us for runaway CEO pay.”
“We played a starring role in the financial crisis.”
“Our lobby crushed bipartisan efforts at reform.”

Source: MarketWatch

Regulators Urge Small Investors to Avoid Non-Traded REITs

REITs stands for Real Estate Investment Trusts. REITs sell like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Real Estate is historically a good performing asset class. Allocating approximately 10% of your stock portfolio is a generally prudent choice. However, state regulators are seeing more and more trouble with a certain type of real estate investment: non-traded REITs.

Non-Traded REITs
Unlike normal REITs, non-traded REITs do not trade on a securities exchange. They have several very significant issues:

Non-traded be can very illiquid.
They can be very difficult or impossible to price on a regular basis.
It can be difficult to exit the investment.

Front-end fees can be as much as 15% (much higher than traded REITs due to the limited secondary market)

Non-traded REITs buy office buildings, stores, and other properties. They are sold directly to private investors by financial advisors and brokers.

State Securities Regulators Worried
Regulators are concerned that small investors are not fully aware nor understand the risks associated with non-trade REITs. States are on the verge of adopting new restrictions to protect “mom and pop” investors including:

Limit how much an individual’s net worth could be put into any a single REIT
Limit the ability of REITs to pay dividends immediately after raising new money (to avoid a Ponzi-scheme like dynamic of paying old investors with new investors’ money)

The State of Massachusetts has brought enforcement actions against brokerages for improper sales of non-traded REITs including

LPL Financial
Ameriprise
Commonwealth Financial
Lincoln Financial

Source: WSJ

When promised quick profits, respond with a quick “no”

Warren Buffett is one of the most successful and sage investors alive today. Students of investing anxiously await his annual letter to shareholders to glean pearls of the wisdom from this master.

Here’s one of our favorite Warren Buffett quotes from the 2014 letter:

“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick ‘no.’”

Unfortunately there are many people that are victimized by financial fraudsters. Just this week a Charlotte, NC man, Mitchell Brian Huffman, was ordered to a pay $2.1 million civil penalty for operating a Ponzi scheme that bilked clients out of about $3.2 million.

Huffman told his 30 victims that he was generating outrageously high annual rates of return of 100% to 150% using a proprietary trading program. Huffman used their money to fund a lavish lifestyle including classic cars and luxury vacations.

Code Red! 8 Ways to Permanently Wipe Out Your Retirement Savings

Dana Anspach at MarketWatch recently wrote about 8 financially devastating mistakes (aka “Code Reds”) that must be avoided:

1. Believe in a stock
The company you work for is doing well. You understand the potential of the business. You should own a lot of company stock. After all, it shows your level of commitment, right?
WRONG! CODE RED!
You can lock in lifestyle by taking risk off the table. If trusted advisers are telling you to reduce risk, listen. You can’t take your “belief” in your company stock to the bank. Owning a lot of company stock doesn’t demonstrate a commitment to your company; it demonstrates a lack of commitment to your own personal financial planning.

2. Get reeled into real estate
Rental real estate is a good way to build wealth with someone else’s money, isn’t it? I mean, that’s what the infomercials say.
WRONG! CODE RED!
Investing in real estate is a profession in and of itself. With real estate prices on the rise again, don’t get reeled in with the lure of easy passive income. It isn’t as easy as it looks.

3. Follow a Tip
An opportunity to double your money is an investment opportunity worth pursuing. It could change your life, right?
WRONG! CODE RED!
Tips are great for your waiter or waitress. But where you family’s future is concerned, avoid the tips, and stick with a disciplined and diversified approach.

4. Change lanes — every year
Smart investors watch the market and frequently move money into the latest high performing investment, right?
WRONG! CODE RED!
You’ve probably noticed if you constantly changes lanes on a backed up highway, always trying to inch ahead, you usually end up farther behind. Driving this way isn’t effective; investing this way isn’t effective either. Pick a disciplined strategy and stick to it. Jumping from investment to investment is only going to slow you down.

5. Play the currency cards
Experts can deliver higher returns, right? Find someone who knows how to trade, and you’ll be set.
WRONG! CODE RED!
If experts could generate such high returns, why would they need your business? Don’t play the currency cards, the expert cards, or fall for any kind of outlandish promises. I’ve yet to see one of these programs work the way it was marketed.

6. Follow your ego
Better investments are available to those with more money, right? If you get the opportunity to participate in something exclusive, it is likely to deliver better returns.
WRONG! CODE RED!
If someone appeals to your ego, walk away. When it comes to investing, the only thing I’ve seen egos do is help someone lose money.

7. Follow their ego
You can trust prestigious people in your community. That’s why you should do business with them, right?
WRONG! CODE RED!
Checks and balances are good in government and in investing. One way to make sure checks and balances are in place is to work with an investment adviser that uses a third party custodian. The third party custodian sends account statements directly to you. The investment adviser can make changes in your account, but the transactions are reported to you directly by the custodian, who isn’t and should not be affiliated with the investment adviser.

8. Leverage up
Borrowing at low interest rates and investing in high growth assets is an excellent way to accumulate wealth, isn’t it?
WRONG! CODE RED!
Think twice before borrowing to invest. It causes ruin more often than it causes riches.

Visit MarketWatch to read Anspach’s full article.

Charity Navigator — The Smart Way to Give

‘Tis the season for giving, but how do you know if you’re contributing to a reputable organization that will make the best use of your donation?

Charity Navigator (charitynavitagor.org) features a rating system of 1 to 4 stars for dozens of charitable organizations. This non-profit provides key guidance on where it’s best to give and how these charities utilize the money that you give them.

A four-star charity has the following characteristics:

it excels at its financial health
spends most of its money on its charitable programs (not administration or fundraising)
completes an annual financial audit
guarantees donors it won’t sell their names to outside parties (i.e., it protects its donors privacy and respects their time)

The best way to donate is to give directly to the charity through their website.

The worst is donating to “cold calls” from a telemarketing firm. The middleman typically keeps 80% to 90% of your contribution and shamefully little actually reaches those in need. Also, avoid appeals delivered via social media because you don’t know who is behind them.

Sources:
Charity Navigator
NPR

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