During my first year as a stockbroker, my firm discovered that one of the brokers in our office had stolen money from his clients’ accounts… so much money that the firm was too embarrassed to prosecute him.

Admitting that one employee could do as much damage as he did, right under management’s nose, would have cost the firm more in reputation than it would have cost to prosecute him.

[ad#Google Adsense 336×280-IA]So the firm paid back all the money he had stolen, and the culprit just walked away.

Well, he didn’t just walk away.

He walked down the street and went to work for another brokerage firm.

My firm paid off the affected clients, and the broker’s misconduct was never reported to the SEC.

A complaint was never filed, and there is no formal record of the incident.

He essentially got off scot-free.

Shady Records

As outrageous as it sounds, even today, 25 years later, firms will pay off clients to avoid formal complaints of broker misconduct to the SEC. The reports are black marks on the firm’s records, too.

That means there are a lot of very crooked brokers and advisors out there whose official records may not tell the whole story. Their public records might not show a true picture of their past behavior and how they’ve historically conducted their business.

And the retired and the elderly need to pay particular attention. It’s sad to say, but these groups have become a target because they’re the easiest to cheat.

Most elderly victims are embarrassed to have been manipulated by people they trusted with their money. Despite their losses, they tend to not report these incidents or the corrupt brokers involved. And this trend of underreporting skews things. As a result, official fraud loss numbers are much lower than the actual figures.

Both Kristen Haugk and I have written about this shocking situation in past articles. So this shouldn’t be news to regular Wealthy Retirement readers.

But today, let’s talk about ways to spot the crooks and avoid what can be a horrible reality.

Steer Clear of Guarantees

First, beware of anyone selling an investment that promises high returns and above market averages in all kinds of markets.

For comparison, a 10-year Treasury bond is paying about 1.8%. A quality dividend-paying stock should pay a dividend of about 3% to 4% a year. And a good corporate bond with a “BB” to “BBB” rating currently pays about 5% to 6% in interest.

There are some higher returns right now in the mining and energy sectors, but those investments are the exceptions. And they tend to carry more risk.

The bottom line is that, most of the time, if you’re being promised guaranteed performance or sky-high returns, run – don’t walk – from your broker.

Watch for Shifty Signs

Next, most crooked brokers and advisors use packaged products to scam their victims today.

If you can’t get a statement directly from the product provider, the mutual fund, the annuity, or – this year’s favorite scam – the oil and gas projects… get out!

Bernie Madoff sent out falsified statements all the time. Any crook can put whatever they want you to see in the statement they produce.

But they can’t alter it if it comes from the issuer of the product. If you can’t get one for the product the broker is selling, don’t do business with him. And never enter into a deal that claims to involve a secret formula or black box investment that promises to consistently beat the market.

No one can beat the market all the time. There are exceptional investors who have done it, but these well-known outliers are few and far between. And the lines of people waiting to do business with these few go around the globe, not around the block. None of those outliers will come to your home or office – or buy you lunch or dinner – to get your business.

Do Your Own Due Diligence

Another red flag is the advisor who is vague about how much commission he’s being paid.

Remember, every cent of their commission comes from your pocket. So you should know, to the penny, how much you’re paying. If you get some vague, mumbo-jumbo answer about the payout rate and you can’t understand it, get out or ask them to leave.

A guarantee on anything aside from Treasurys and FDIC-insured instruments is something to be wary of. Some annuities offer a guarantee, but that is not the same as the guarantee from the FDIC or U.S. government. And that point should be made clear to you.

And make sure to track your account activity online on a regular basis. It is easy to do and, even if you’re not skilled at using a computer, any decent advisor will spend the time to teach you how to do it.

Additionally, if you can avoid it, never have money sent to you by mail. In this internet age, it takes two minutes to transfer money from account to account. There’s no reason to have a check coming to you by snail mail.

A No-Nonsense Attitude Pays

Finally, recognize that most salesmen, including advisors, will want you to believe that they are your friends and that they are concerned about every aspect of your life. They aren’t! Well, most of them aren’t.

There are exceptions, but the best broker I know is a rough, tough street-hardened guy. He has 30 years of experience in his craft, has paid all his dues and doesn’t have time to be nice or friendly, except for an occasional “how ya doing?”

He couldn’t care less about any part of my life except my account. And that’s how I want it!

He’s right to the point and usually has two or three other clients on other lines. He’s one of those who has occasionally beaten the market.

You don’t want a friend, a confidant or anyone else besides this kind of advisor. Most of us have no way to replace any money that is lost or stolen, so make sure you’re dealing with the best.

I used to tell all of my prospective clients, “I will be happy to have your lawyer or accountant sit in on our initial meeting and all meetings if you would like.”

If yours won’t do the same, it’s time to get a new advisor.

Good investing,



Source: Wealthy Retirement