To avoid falling for a scam run by another Bernie Madoff, look out for these warning signs.
- High, consistent returns. The stock market is a volatile machine. Anyone who says he can beat the market on a steady basis is probably lying.
- Statements sent directly from your adviser. Your financial statements shouldn’t be mailed to you directly by “your guy.” Instead, they should come from an independent third party that’s the custodian of your investment: the “broker of record.”
- There is no “secret formula.” It would be nice if there was, but there isn’t, so beware of any adviser who tells you he’s come up with a special system for beating the market.
- Beware promises of low risk. There is always risk when you invest your money. An adviser should never make the unrealistic promise of high returns with low risk.