9 Warning Signs of Potentially Fraudulent Investment Advice
By: Source: AARP Bulletin Today Date Posted: 2004-01-26 09:18:00-05:00
Of course, if it sounds too good to be true, it probably is. But there are other signs of potential agent fraud—by your insurance agent or other financial adviser—that you should heed just as quickly. Listen for phrases such as:
"Don't worry about it."
Your financial planner should be happy to answer all your questions and explain everything to make sure you're comfortable with your investment choices.
"You need to decide right now."
It takes time to make educated decisions about something as important as insurance or your nest egg. "Very few financial decisions need to be made on the fly," says Dayana Yochim, senior personal finance writer at The Motley Fool, a financial education company. "Heck, even Uncle Sam grants extensions on filing your taxes."
"Cancel. Now, buy. Now, cancel. Now, buy."
If your agent is continuously persuading you to cancel your annuity or life insurance policy, then purchase another with a different company, then the biggest beneficiary is likely your agent's commission check.
"You're guaranteed a 40-percent return annually."
Few investments have guaranteed returns. If your adviser promises a certain result, get it in writing.
"These CDs have the highest rates around."
An offer of higher-than-normal interest rates on Certificates of Deposit could be the bait to entice you to consider buying an annuity or some other product with a higher commission for your agent, according to Barry Lanier, an investigator with the Florida Department of Financial Services.
"I'm concerned about your insurance company's stability."
If your agent tells you your insurance company is having financial problems and encourages you to replace your current policy with one at another company, Lanier says, do a little detective work. Check with your state's insurance department to find out the actual financial condition of your company.
"My friends let me in on a little secret."
Knowledge about top-secret technology, inside information from Wall Street and assurance of FDA approval for a new drug are among many statements you should treat with a heaping dose of skepticism. "Right, … a 'secret.' Some things are best ignored," Yochim says, "by you and Martha Stewart."
"Penalties are no big deal."
Before you surrender life and annuity contracts, find out what the penalties are, Lanier advises. Your agent might play down these penalties, but they could be more than 20 percent of your policy's cash value.
"Just sign here. I'll explain later."
As with all contracts, don't sign anything without knowing—and understanding—all the facts. And don't sign a form that has blank spaces. Be on the lookout, in particular, for documents granting "discretionary authority," which allows your adviser to buy and sell without consulting you.
Ultimately, it's all about trust. "Do you trust your right-hand man or woman's advice?" Yochim asks. "You're paying for it, so you should. If you're wary, then maybe your gut instincts are telling you something about your level of trust. In the end, you call all of the shots."
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