You have read hundreds of stories describing Ponzi schemes and other illegal investment scams. But, investor losses from those scams are a drop in the bucket compared to legal investment scams.
Legal scams are perpetrated by unscrupulous, licensed advisors who deliberately sell bad investment products that benefit them or their companies. An example of a bad product is a mutual fund with a really bad track record. Why did the advisor sell this fund? Because it is owned by the company that holds his licenses. This is a common strategy of banks, insurance companies and others that produce inferior investment products, but require their representatives to sell them. Companies make more money at your expense.
The other scam occurs when advisors make more money. The crummier the product the higher the commission that is paid to sell the product. Unethical advisors sell the products that pay the highest commissions. For example, most annuities pay 5-7% commissions with a seven year penalty for early withdrawal. However, there are annuities that pay 15% commissions and have 15 year penalty periods. A very, very bad deal for consumers.
You are in real trouble if you are unlucky enough to like or trust an unethical advisor. That’s because your returns will be eroded by excess fees and your performance will be lackluster. You should always interview multiple advisors and compare their recommendations to each other. Then hope one of them is ethical and puts your financial interests first. You should also select an advisor who gives you freedom of choice and does not limit your choices to company products.
This article hits the nail on the head. My husband followed an unethical advisors advice and it cost us tons. I am trying to seek counsel to see if we have a case. Also I will put in complaints to as many places I can.
New services on this website later this month will help you avoid this type of problem in the future. Watchdog will gather data on your behalf and produce a report from the data so you can make informed decisions when you select advisors and invest your assets. Do not expect an advisor to volunteer this information. You have to ask for it. Then you have to know good answers from bad ones.