Protect Clients From Shady Deals


My clients have received any number of solicitations for “deals” or gotten pitches for great investment “opportunities” that can’t miss.  Many times they run them by me and most of the time I suggest they pass.  Penny stock scams and “pump and dump” are fairly easy to spot by professionals.  There is a good article in Financial Planning about an advisor to business owners who get solicited by relative and friends with deals.  Like me, the advisor acts as a screener. 

He listens to pitches from solicitors himself, so his clients don’t have to. “We vet all these outside business opportunities and nine times out of 10, there is a reason why they shouldn’t be doing this.”

The service takes a huge burden off clients’ shoulders, he says: “One of the things they love the best is that [when they say no,] they can make us the bad guys.”

Here are the steps he takes to protect clients:

  • Guide clients to pick the percentage of assets that they want to allocate to very aggressive investments. Aim for between 2% or 5%, at the most, if the client is comfortable with risk.
  • Coach clients to tell any solicitor that they have an existing process with their planner to evaluate business deals. Leventhal’s clients urge the solicitor to send him all materials related to the proposition.
  • When evaluating a pitch, determine whether the people asking for money have a written business plan for the business. If not, notes Leventhal, it’s probably not a serious venture.
  • If you do get a business plan, look to see whether the owners are putting their own money into the venture. If not, that’s another red flag, he says.
  • If a venture has both of the above, then you can begin analyzing the underlying business proposition. Ask yourself if the owners have conducted enough research into their industry. Have they addressed the market leaders in their field? Have they credibly laid out how they will defeat them?
  • If it’s an industry you are unfamiliar with, bring in outside experts for analysis.

A good advisor is a comprehensive advisor who provides expertise on all aspects of a client’s life.

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