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Four Tips for Ohio Consumers on How to Avoid Financial Fraud in 2011

With the New Year upon us, what better time to reevaluate your finances (and your financial behavior)? In 2010, we saw an almost never-ending stream of investment scams, Ponzi schemes, and financial fraud cases come to light. Many investors continued to struggle with devastating losses due to the misconduct of others. The New Year is a time for new beginnings, and an ideal time to put strategies into practice that can help you avoid financial fraud in the future:

Tip #1: Know Your Advisor. Before hiring an advisor, you should conduct your own research, which includes: checking your advisor's background, checking the advisor's references, checking with the SEC and/or your state regulatory agency for any outstanding complaints, and having at least one face-to-face interview. If the advisor has any certifications listed after his or her name, you should also call the organization that issued the certificate to ensure the advisor completed all of the requirements to obtain that particular certification. And, remember: Knowing your advisor doesn't stop once you've hired him or her. You should check in with your advisor often, and you should make sure you thoroughly understand what you have authorized your advisor to do in your name.

Tip #2: Know Your Portfolio. You should know about and thoroughly understand each and every securities product you own. And, if you have invested in products that are publicly traded, like stocks, mutual funds, and ETFs, you should check the products' reported returns against the gains/losses reflected in the documentation sent to you by your advisor. Any discrepancy should serve as a red flag that something may not be right. If you have invested in complicated products such as private placements or hedge funds, make sure you completely understand the basis of each investment, the investment strategy, and the expected returns. Obtain information from an independent, third-party when possible and check it against the information given to you by your advisor.

Tip #3: Insist on a Custodian. An independent custodian helps ensure you receive unbiased and objective information from someone whose paycheck is not tied to your portfolio. Michael Spindler, an executive director at Capstone Advisory Group LLC, says: "Separating custody and investment adviser functions provide the client with better control over their assets and better defends against the ability of the investment adviser to commit fraud," (as quoted in a Dec. 23 Reuters.com post on avoiding financial fraud).

Tip #4: Diversify More Than Your Investments. As many of Bernie Madoff's victims found out, giving all of your money to just one person is an easy way to lose everything. Everyone knows that a diversified portfolio gives the best chance for a solid return, but few people remember to diversify their account managers/advisors along with their investments. Protect yourself from losing all of your money by opening accounts with several different people. It may seem complicated and you'll likely get a lot more documentation than if you used just one person, but you'll be protected from the financial fallout of a fraudster or someone who just made the wrong bet.

About our law firm:

The Ohio-based law firm of Meyer Wilson represents clients who have been harmed by investment fraud. Contact us toll-free at 1.866.827.6537 for more information.

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