Chapter 12 (Part 2) - “Interviewing Advisors and Avoiding Fraud"

In this episode, podcast host and author of “Control Your Retirement Destiny”, Dana Anspach, covers part 2 of Chapter 12 of the 2nd edition of the book titled, “Whom To Listen Too.” Part 2 covers "Interviewing Advisors and Avoiding Fraud."

If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon.

Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

 

Chapter 12 (Part 2) – Podcast Script

Hi, this is Dana Anspach. I’m the founder and CEO of Sensible Money, a fee-only financial planning firm. Fee-only means no commissions. I’m also the author of Control Your Retirement Destiny, a book that shows you how to align your finances for a smooth transition into retirement.

This podcast is an extension of the material in Chapter 12, on “Whom To Listen To”. I’ll be covering the topics of avoiding fraud and how to interview potential advisors.

If you like what you hear today, go to Amazon and search for Control Your Retirement Destiny. And, if you are looking for a customized plan, visit sensiblemoney.com to see how we can help.

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We’ve all heard the saying “if it’s too good to be true….” So why do we fall for fraud, over and over? I think I know the answer.

To recognize if something is too good to be true, you must know what truth is in the first place. And when it comes to investing, a lot of people have no idea what is realistic and what is a fantasy.

By the end of this podcast, you will not be one of those people. I’ve got several real-life stories to tell – stories about fraud and why people fell for it. You are about to learn what to watch out for. And as a side note – for the personal stories I tell I change names and details for privacy reasons. Although details are changed, the substance of each story is true.

Let’s start with the biggest financial scam in U.S. history – what is known as the Bernie Madoff scam – a 65 billion-dollar Ponzi scheme. If you haven’t heard of him, Bernie Madoff was the former chairman of the NASDAQ stock market. Naturally when he started his own investment firm, people trusted him. His scheme came unraveled in December 2008 and many families lost their entire life savings.

One of the men credited with bringing down Madoff’s scheme is Harry Markopolos. He tells his story with his co-author Frank Casey in their book called No One Would Listen: A True Financial Thriller.

How did Harry Markopolos figure out Madoff’s scheme? Markopolos said, “As we know, markets go up and down, and Madoff’s only went up. He had very few down months. Only four percent of the months were down months. And that would be equivalent to a baseball player in the major leagues batting .960 for a year. Clearly impossible. You would suspect cheating immediately.”

Maybe Markopolos would suspect cheating immediately, but would you? Harry Markopolos was in the investment business. He knew what is and is not possible. But what about the average person who walked into Bernie Madoff’s office and was told that they could consistently earn 12% returns each year? Any one of us in the investment business would walk out and head to the authorities. But the average investor? They think that sounds great and that someone has the magic formula to make it happen. They don’t know that they should suspect cheating immediately.

How can you assess what is realistic and whether someone is lying? First, you must understand that safe investments earn low returns. If a proposed investment pays more than a money market fund or more than a one-year CD, than there is risk. If someone doesn’t explain those risks and tries to assure you t