Tuesday, 12 April 2016

Finance, Investments, Wealth and Asset Management: How to Avoid Fraud

There is a plethora of investment opportunities that could potentially lead to wealth accumulation. However the same schemes could inadvertently make you a victim of fraud if you do not take the time to understand who is really looking after your money. Risk is the only way to earn profit from entrepreneurship but that risk must be carefully calculated and weighed against all the available information that you have. Here are two tips you might want to consider:

1.      The manager must never handle the cash

It is a simple but very effective principle which applies for every single investment opportunity. There are two distinct roles that must remain separate. The custodian is responsible for holding the securities, cash and accounting information for any transaction. The money manager provides advice and executes the investment transactions.
These must be two entirely separate entities so that there is an in-built protection against potential fraud. The custodian is required to send accounting statements directly to the client so that the investment manager cannot amend or tamper with the records. Madoff would not have occurred if this simple tip had been implemented by the hapless investors who were cheated out of millions of dollars.

2.      Do not get involved if there is no accreditation

Only hire and work with people who are not only qualified in the field; but also have accreditation from recognized professional bodies. This helps in two ways. First of all the accrediting body will have done background checks and ethical training for the companies or individuals involved. That means that even if you had a problem down the line, they could intervene and assist with the investigation. The other criteria is that people who are accredited normally fear losing that accreditation because it means that they are publicly outed and will never work again.
The best accreditation body is CFA but there are other alternatives including CIM, PFP, CFP and CSC. Do not just look at the application form of the glossy brochure that is presented before you. Make sure that you ask questions and verify the information with the awarding body.  The Jones fraud case would not have happened had the investors checked to see whether the person selling them a pipe dream was registered with the relevant authorities.


Finally remember that if it looks too good to be true then it probably is. That commonsense adage could probably save most fraud victims from the heartache of losing their money. Few people believe that they could actually fall prey to a pyramid scheme or the equally notorious “Ponzi” until it actually happens in reality.

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