Beware Scam Artists

July 24th, 2007  |  Published in Scams  |  Comments Off on Beware Scam Artists

Even though the article is the date, the information in this Kiplinger’s article is still relevant because it touches on a very important topic – how to avoid con artists and prevent them from stealing your nest egg. The interesting part about the article isn’t so much that someone fell for a Ponzi scheme but that it was their own “greed” that led them to their downfall. According to a study by the NASD Investor Education Foundation, “Seniors who were victims of investment fraud scored higher on financial literacy questions than nonvictims… They also tended to be wealthier, more educated and married.”

While that at first seems surprising, it’s not all that surprising when you consider the nature of the scams in the investment industry. They rely on you willfully giving them your money and they do that by tapping into your desire for more money, for a comfortable retirement, and because they offer you a once in a lifetime opportunity. The fact that those targeted are wealthier and more educated is not surprising either, these investment schemes are complicated, which appeal to the nature of more educated investors, and uneducated people may be put off by the complicated nature. As for wealthier, well that’s because wealthier marks make for higher returns!

Ultimately, the old adage “if it sounds good to be true, it is” still applies in force. Here are the tips Kiplinger’s gives:

  • Be skeptical of promises of above-market returns.
  • Recognize the trouble investments.
  • Take your time.
  • Insist on written information.
  • Check out the adviser.

Definitely give the article a read especially the end where it lists how to protect yourself, you might just save yourself some money and some heartache.

401k Revenue Sharing Controversy

January 19th, 2007  |  Published in 401K, Scams  |  3 Comments

There are two big points in a recent article in on the topic of hidden 401k fees. The first is the issue of “revenue sharing” between a 401k fund choice and the 401k’s plan administrators. Apparently what happens is that large investment companies are essentially offering a “kickback” to a plan administrator if they recommend the use of their funds.

Last fall, insurance giant ING settled, without admitting wrongdoing, an investigation by New York Attorney General Eliot Spitzer into payments to a New York teachers union to endorse and promote ING annuities in the union’s retirement savings plan. ING will now disclose costs to plan investors and also explain that mutual fund managers often pay ING to have their funds appear on the menu of options offered to investors.

Before you ask what the big problem is, take a look at your fund options. It’s not like you have the ability to pick any mutual fund out there on the market, chances are you are limited in what you’re allowed to pick. Even if you are given that option, if your plan administrator offers you a more expensive option (unbeknownst to you), there is a certain segment of your fellow workers who will just take that recommendation at face value. Either way, it’s wrong.

Certainly the more savvy retirement population is going to pore through the prospectus and figure out what you’re getting for the money, but for everyone else, they’re getting bilked.

Avoid Equity Index, IRA Rollover, and Swapping Annuities

September 11th, 2006  |  Published in Annuities, Scams  |  2 Comments

Annuities are very very complicated creatures in the investment world but break down into three major categories. A fixed annuity is like a CD, paying out a fixed rate that is guaranteed. Variable annuities are like mutual funds that can get you a higher rate of return if you can stomach the higher mutual-fund like risk. Lastly, there are the hybrid annuities which breaks up your investment into fixed and variable so you get a guaranteed but also get a taste of the hot hot stock market. That seems simple enough until you get into the various species of annuities, the little games they play, and how the fees are structured. Some annuities have commissions as high as ten percent!

CNN Money took a look at three annuities you must avoid at all costs: Equity indexed annuities, IRA rollover annuities, and an annuity swap.

Equity Indexed annuities (EIA) are a bad idea because while their returns are based on a market index, such as the S&P 500, your total gains may be capped percentage-wise or dollar-wise and you may not earn the dividends from the holdings (since you’re not actually holding the stock). Take that and the fact that you’ll suffer penalties if you withdraw within a specified time period, typically calculated in many man years!

IRA rollover annuities are even more ridiculous because they aren’t even necessary. Salespeople will pitch these ideas on the hopes of preying on your weakness while they take high fees which can run as high as 3%.

Lastly, an annuity swap is where the salesperson will tell you your existing annuity is outdated, bad, low-returning, but he or she has one that will beat it and he or she will give you a couple extra percent of your investment right on the spot! The downside of this is that you still pay surrender fees on your old annuity and the new annuity may not be much better.

via CNN Money.