Category Archives: scam

How QB Mark Sanchez was sacked by a financial adviser

NFL quarterback Mark Sanchez was allegedly cheated out of about $33 million by Ash Narayan, who worked for RGT Capital Management for nearly 20 years. Image: Associated Press

This article from Financial Planning caught my eye:

NFL quarterback Mark Sanchez and major league baseball pitchers Jake Peavy and Roy Oswalt were allegedly cheated out of about $33 million by Ash Narayan, who worked for RGT Capital Management for nearly 20 years, the SEC has charged.

Narayan “secretly siphon[ed] millions of dollars from accounts he managed for professional athletes,” the SEC alleged.

When you hire someone to manage your money you trust that they will serve you honestly and ethically.  Unfortunately, that trust is sometimes betrayed, which gives the financial services industry a black eye.

One of the things that we can pass along to our friends and clients are lessons learned.  In this particular case, Narayan put a lot of his clients’ money into a struggling internet firm in which he had a financial stake.  That is a huge conflict of interest and should be a red flag for anyone who hires a financial advisor.

Sanchez hired Narayan partly because they attended the same church.  We have seen several instances where people entrusted their money with advisors who were part of the church, the club or another affinity group without checking further.  When hiring an advisor you cannot assume that people close to you have your best interest at heart.  Even family members will take advantage of other members of the family.

If you want a brochure that tells you how to choose a financial advisor, contact us.  We are fiduciaries.

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Avoiding Tax Scams

Financial Advisor magazine ran an excellent article about a scam that is being run by people pretending to be IRS agents. One of these scams defrauded more than 5,000 people out of more than $25 million.  Here’s how one scam works:

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

Here’s what you must know: the IRS never solicits payments by phone or e-mail.  If they need information they will always write a letter first.  Do not respond to e-mails that appear to be from the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System.

There are a number of other frauds that involve taxes.  A thief may steal your identity and fraudulently file a tax return and claim a refund.  There are several ways to avoid this happening to you.  First, protect your identity by shredding all documents that contain personal information.  Second file early and electronically; electronic filing eliminates paper documents with sensitive information will not get stolen in the mail.

Beware of tax preparer fraud.  It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

Beware of “Free Money” from the IRS or scams involving social security.

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

 

We protect your identity and work hard to safeguard sensitive financial information.  It’s why we provide you with a password protected Lock Box when we send information such as performance reports to you electronically.

For more information, please contact us.

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Use caution when selecting an investment advisor

It’s important to know that your investment advisor has your best interests at heart.  As Registered Investment Advisors (RIAs) we are “fiduciaries.”  That means that we put our clients’ interests first, ahead of our own.   One of the great things about being an independent RIA is that we work directly and only for our clients instead of being on the payroll of some large investment firm.  Our clients are our employers, not a large bank or some corporate giant with headquarters on Wall Street.

An article published in a recent issue of Financial Planning was entitled  Trusting Advisors Just got Harder.  

According to the author:

A new working paper by business school professors at the University of Chicago and University of Minnesota found that 7% of financial advisors have been disciplined for misconduct that ranges from putting clients in unsuitable investments to trading on client accounts without permission.

It’s a touchy subject in this industry.  Many of the issues are related to the sale of high-commission products including annuities and other insurance products.  According to the professors’ research, unfortunately, the offenders often move on to other firms and are likely to become repeat offenders.  Before working with an advisor it is always a good idea to do a BrokerCheck with FINRA (the Financial Industry Regulatory Agency) to see if he or she has a blemished record.

The study actually provides a list of the 10 advisory firms with the highest misconduct rates.  Surprisingly, some of the biggest firms in the industry have a large number of advisors with misconduct on their records.

Most of the people at these firms are honest and do look out for their clients’ best interest. But it does pay to be careful out there and at least do some background research, like BrokerCheck.  As Reagan once said “trust but verify.”

For more information, contact us.

 

New Scam Tricks Advisors Into Giving Up Clients’ Money

Financial fraud has always been a problem, but the Internet has enabled entirely new ways of stealing money. We recently received an alert about a new scheme to defraud advisors and their clients.

The scam begins with an email to an advisor that includes a bogus invoice. The email appears to come from a client, and it includes a request to send money directly to the business listed on the invoice. The invoice might appear to be for purchases such as antiques or art, or for such things as attorney fees or legal settlements. The advisor sends the money, and the fraud is complete.

The payee is often in a foreign country or at an overseas bank. This makes it nearly impossible to catch the thieves or reclaim the money. The FBI estimates that more than 2,000 victims lost more than $214 million to this scam between October 2013 and December 2015.

My firm has a policy of not sending clients’ money to third parties based on email communication alone. But we go beyond simply confirming client requests by phone. It is our policy to get to know our clients personally. We know if they have a pattern of sending money to third parties. In all cases, we require a written letter of authorization as well as verbal confirmation from the client before any money is sent out.

The recent news that personal information about more than 20 million government employees, contractors and others was stolen highlights the importance of the security of your financial information. It also makes dealing with a financial firm where you are an individual, not a number, increasingly important.

NOTE: We recently submitted this article to NerdWallet who posted it on their Advisor Voices board.

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Protecting yourself against financial fraud.

Bernie Madoff isn’t the only fraudster preying on the unwary. There are a number of scam artists in the financial services business.

There’s the case of Malcolm Segal. According to the SEC:

Segal allegedly promised his clients 12% returns on CDs bought through Aegis. But he’s alleged in some cases to have either bought the CDs but redeemed them early or not bought them at all. Citing the SEC, the Philadelphia Business Journal says he raised about $15.5 million from at least 50 investors in this fashion.

It puzzles me how people can actually fall for something like this. Perhaps I have been in the investment business so long that I have seen too many of the ways people are fleeced out of their money.

How do you protect yourself against financial fraud? The first thing to do is to be suspicious of offers that are too good to be true. No actual, legitimate bank is offering 12% CDs in a 1% interest rate environment.

Another thing to do is to make sure that your assets are held in custody be a third party; a custodian like Charles Schwab, Fidelity or a major bank trust department.  The reason that Madoff was able to fool his clients for so many years is that he printed his own statements. These statements “showed” that he was trading for them and that they were making money. In reality, he was not trading and their account statements were fabrications.

At Korving & Company we use Schwab as our custodian and our clients receive trade confirmations and statements from directly from Schwab. We encourage our clients to view their accounts on-line at Schwab.

We had an experience with a client who had an account with another advisor. He suddenly dropped his custodian and began producing his own account statements. That’s a wake-up call. They asked us to look at their statements and when we noticed that their end-of-year tax reports did not include taxable income from CDs that he claimed to have bought for them, we knew he was defrauding them.

If you have any concerns about your financial advisor, feel free to contact us for a second opinion.

 

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8 Common Reasons for Retirement Failure

1. Overspending.

-You won’t spend less in retirement.  The old saw that retirees only spend 80% of their pre-retirement income is a myth.

2. Elder Fraud.

-Seniors are becoming the favored victims of swindlers.

3. Health care.

-As we age the cost of medical care goes up.  Medicare is covering less and premiums are going up.

4. Starting a business.

-Investing capital in a business that fails can devastate retirement finances.

5. Adult children.

-Helping your children through a “rough patch” can become is one of the most common ways of ending up broke.

6. Second homes.

-The cost of maintaining that vacation home when you’re no longer working can drain your resources when your income drops.

7. Divorce.

-Couples sometimes wait until the children leave home to divorce.  When assets are split 50/50, retirement becomes a problem for both parties.

8. Investment mistakes.

-Making poor investment choices is one of the most common ways of ruining your retirement lifestyle.

If you are nearing retirement, don’t enter into it without a plan.

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Protecting Elderly Clients

Much has been written about the vulnerability of the elderly to scams that are perpetrated on them. Because seniors are concerned about health care, con artists prey on the elderly to get them to buy fraudulent products or services. Home improvement scammers prey on the elderly by providing shoddy or unnecessary repairs. Stories about unscrupulous financial advisors are frequently in the news. Funeral homes have been known to get the elderly to spend more than they want or need. Some scammers will read the obituaries and pretend that the deceased ordered products or owed a debt to try to get money from the surviving spouse.

Very often the people preying on the elderly are relatives. Because most of us trust our relatives, it gives them an opportunity to take advantage. Children have been known to move back into the family home and physically abuse their elderly parents. They may employ emotional blackmail. They may threaten to stop visiting or calling.  They may tell their parents that not giving them money means that they don’t love them. Often a demand for money is disguised as help with bills, or presents to grandchildren.

Of course parents make gifts to children and grandchildren all the time. But there is a line beyond which it becomes clear that children are looking to get their “inheritance” early. This can lead to an impoverished parent who loses his independence, or even his home.

It can be very difficult for a concerned financial advisor to protect his client from predatory relatives.  Often the parents want give money to their children and may be unaware of the financial consequences.  As fiduciaries we have to keep in mind that our obligation is to our client; not her children, grandchildren or any other relatives. You may have to tell your client “I know you love your son, but you should not give him the house because you may need to sell it so that you can move into a senior living facility.” Of course this can create a conflict with the relatives who will not appreciate what you are doing.

At some point it may be necessary to get an attorney involved, one who specializes in elder care. This is particularly important if the heirs don’t get along. If the elderly become incapable of managing their own affairs they can assign power-of-attorney to a third party.  If the children are not competent, or if there is a conflict, appointing an attorney as the executor of the estate may be preferable to appointing a relative.

Providing financial guidance to the elderly is much more than managing their portfolio. There is often much more going on that is critical to the well-being of the client, and avoid the chance that they run out of money before they run out of time.

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