Ten ways to avoid being ripped off
The Gazette, Monday, December 10, 2007
Don MacDonald
During the past few months, I spent a lot of time researching stories about insurance and mutual-fund adviser Rocco Di Stefano and the staggering losses a good number of his clients are facing on investment notes he sold them.
Before this story, I covered the Mount Real scandal where about 1,600 small investors have lost $130 million in similar types of investments sold to them by financial advisers.
There have been many other cases in Montreal, and elsewhere in Canada, in recent years. And, sadly, I have no doubt there will be more in the years ahead.
The victims tell heart-breaking stories of how their lives have been turned upside down and their hopes and dreams eclipsed by the financial losses they have suffered.
The details are different, but the themes are constant: People with little or no knowledge about investing putting themselves into the hands of the wrong adviser.
I asked author Warren MacKenzie to help me come up with a list of 10 tips to help readers avoid becoming one of the unhappy victims of an investment scandal.
MacKenzie runs Second Opinion Investor Services, a Toronto firm that offers an independent review of portfolios, and is the author of the Unbiased Advisor.
- Deal only with representatives who are licensed and have proper credentials.
Find out about their education and professional accreditation and ensure they are registered with the Autorité des marches financiers by checking the AMF’s website or phoning its information centre. Check to see whether there have been decisions against the person by searching for the name on the website, as well as that of the Chambre de la sécurité financière (for mutual fund, insurance representatives and financial planners) and the Investment Dealers Association for (full-service stockbrokers).
- Use your common sense.
“There’s no such thing as an investment that pays a higher rate of return without higher risk,” MacKenzie said. Ask yourself why you’re so lucky to get this great opportunity. The expression is hackneyed but true: If it sounds too good to be true, it’s probably too good to be true.
- Get another opinion on an investment product or opportunity from an objective
source. It could be another adviser, someone at the bank or a trusted friend or family
member with knowledge of investing matters.
And take a step back and ask yourself: How would a bank or a sophisticated investor analyze this? Where is the risk?
- Be highly suspicious of any time pressure - it’s a red flag for fraud.
“Don’t ever feel that you have to do this or you’ll lose the opportunity,” MacKenzie said. “Pressure to make a decision quickly is always a bad sign. There will always be another opportunity.”
- Make sure your portfolio is diversified and never put more than 10 per cent of your
nest egg in any one investment.
- Be wary of tax avoidance schemes. A product should have investment merit above
and beyond any tax-sheltering angle. While you want to be smart about minimizing
taxes on your portfolio, be prepared to pay your fair share. And, by the way, if
someone is willing to break the law to help you evade taxes, what’s to stop them from
breaking the law to take your money?
- Ask yourself how well you understand the investment that’s being pitched to you?
Could you explain it to a family member or neighbour? Or are you just taking what’s being told to you on faith?
- Stick to large, well-known investments. Don’t get involved with obscure private
companies and schemes.
- Be patient, not greedy. The idea is to get rich slowly, by protecting your capital and
investing prudently. Consider this: $20,000 invested at a rate of eight per cent a year,
with monthly contributions of $250, will turn into $245,000 in 20 years.
- Realize the importance of your savings to a secure and happy retirement. Focus
your mind and take the relatively small amount of time required to shepherd your
savings properly. You owe that to yourself and your family.
The telephone number for the AMF information centre is 514-395-0337 or toll free 1-877 525-0337. The agency also offers brochures on securities fraud and other investing themes in English. They’re a bit hard to find on the site. First look under the publications tab for “brochures and leaflets for consumers” and then click on “making informed investment decisions.”
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