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Best Resources to Avoid Investment Scams


Looking for investments with good returns and little risk? You aren’t alone: Scam artists know that people are hungry for such products – and are more than happy to serve up financial opportunities that, seemingly, “can’t miss.” Fortunately, a new collection of resources can help you steer clear of questionable investments and the people who promote them.

The Alliance for Investor Education has compiled 12 top resources to help investors distinguish between legitimate high-risk investments and deals that are too good to be true. The organization – made up of leading financial-related foundations, nonprofit groups, associations and government agencies – is highlighting the information in a new section on its website: “Understanding High-Risk Investments – What Investors Need to Know To Invest Safely and Wisely.”

Says Sue Duncan, the alliance’s president: “With recent market fluctuations and the overall downturn in the economy, it can be tempting to invest in something that offers a high rate of return. But investors need to make sure they are investing in a legitimate financial product and that they understand the level of risk they are undertaking.

“If they are offered a high return with low or no risk, it’s likely a scam.”

Among the resources highlighted at the alliance’s website are:

“Top Investor Traps and Threats.” From the North American Securities Administrators Association. The group’s annual list of financial products and practices that “threaten to trap unwary investors.” Examples: distressed real-estate schemes and “affinity fraud” – scam artists who target religious groups and the like.

“Outrageous Advertising: A Survival Guide for Investors.” Published by the American Association of Individual Investors. The author identifies warning signs that people should watch for when reading an investment ad.

“Consumer Guide to Financial Self-Defense.” From the Certified Financial Planner Board of Standards Inc. Discusses 10 “red flags” that should alert investors to possible fraud and offers “self-defense moves” for each. Example: A financial adviser who presents you with a “private” or “exclusive” investment opportunity could be “selling away” – offering you an opportunity that the adviser’s employer doesn’t know about or doesn’t supervise.

“Investment Risks.” Published by the Federal Trade Commission. A list of 10 “pre-investment” questions (with discussions) that you should ask both the person soliciting your business – and yourself. Examples: Is the company I’m investing in registered to sell securities? And: Can I tell a genuine company from a fictional one?

Remember: If you want high (or higher) returns – particularly at a time when safe investments like certificates of deposit are returning 1% or less – you have to take risks. A person who is promising you solid returns with little or no risk is likely offering something he or she can’t deliver. Just ask Bernie Madoff.


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    • This article describes the Fixed Index Annuity. Sales of this product are at unprecedented levels. They are often sold inappropriately by unscrupulous insurance agents.
      Unfortunately, they are out of reach of the federal regulators bedcause insurance is regulated at the state level. Rule 151a would have helped, but the insurance industry had it killed off last year.

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  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.