Don’t Be a Financial Horror Victim
June 14, 2016I love old B-rated horror movies. In fact, I was watching the Halloween countdown of horror movies at a Halloween party, and every male under 20 was impressed by the fact that I knew almost every horror movie by watching one scene. I am sure some of this comes from my male relatives taking me to an R-rated horror movie (sorry mom) when they were forced to babysit me. I felt so grown up watching the movies, and I was surprisingly so fascinated as to how they created the scenes that I never got frightened.
What struck me about every movie is that moment when you almost root for the bad guy. You know the scenes when the next character to die goes into the scary building and then runs upstairs as if he or she will grow wings and fly? They always had a bad feeling and always ignore the outward signs. As I recently watched a horror movie with my husband, I was struck by the similarity between people in horror movies ignoring all of the bad signs and how people ignore the “writing on the wall” about a bogus advisor.
During 2008-2011, the main demographic of the group where my office was located was snowbirds – retirees who spent their winters in Florida and their summers in Georgia. One client at the time asked me to talk to her sister. She said something did not sound right about her sister’s investments. After taking a quick look at her statement, I recognized the name of the investment company, and I unfortunately had to tell her that she was a victim of a Ponzi Scheme. News traveled quickly, and I soon found myself flooded with retirees.
I could feel the panic of most of the retirees I spoke to. Most sensed something was wrong. After I got to know many of them, I asked them what they would have told themselves ten years ago, knowing what they know now. Overwhelming what I heard was:
1. If it is too good to be true, then it is. Many of them knew markets goes up and down and anyone that promises nothing but an upside automatically should raise a red flag. No investment is 100% perfect. As you can see from this chart that markets have highs and lows. If you are promised returns that do not match this chart’s returns question your financial planner as to why their results differ from historic average. Remember, a good planner will go over the benefits as well as the risks with their recommendations and work with you to make the most informed decision.
2. If you do not understand the investment and/or investment philosophy, ask until you do. Over and over again, I heard that the reason why they thought they did not understand their investments was because they weren’t knowledgeable enough. You should always understand the investments and/or investment strategy and how those choices will get you closer to your goal. If you struggle to understand this, keep asking until you do, even if it means finding an advisor that can help you understand. If you struggle to understand financial lingo, consider using websites like Investopedia University or Morningstar’s Investing Classroom to help you translate financial jargon into something understandable.
3. No matter how much you trust your advisor, do a background check. Not one person I spoke to did a background check. All believed everything they were told. In some cases, the background check would have revealed past problems with clients. No matter how trustworthy you think your advisor is, check their records at FINRA BrokerCheck.
You can also use this article as a checklist to finding the right financial advisor for you. Whatever you do, don’t be like a horror movie victim. Noticing bad signs and doing a little homework can go a long way to preventing you from being the victim of a bad financial planner.