Your main question is probably, “What is a Ponzi scheme and how do I know if I am in one?” A Ponzi scheme is simply a fraudulent investment operation that claims to pay higher than average returns on invested monies. The premise is to get as many people as possible involved in order to maintain a continuous cash flow for the scheme. In real terms, it is built (and oftentimes crumbles) on the fortunes of unsuspecting investors.
So, how do you know if you are a victim of a Ponzi scheme or if someone is trying to get you to participate in one? Here are a few warning signs:
- Unclear business model – The financial adviser is not able to explain exactly what the investments are, how the investment works, and/or how the returns are calculated.
- Promise of guaranteed returns – There are always risks associated with any investments, therefore returns cannot be guaranteed. Be wary if someone tells you they can guarantee a profit.
- Aggressive sales tactics – Testimonies of incredible returns of others involved to get you to commit.
- Pyramid structure – Repeated requests for you to encourage family and friends to participate in an exclusive opportunity.
- Sounds too good to be true – Investments do not generally have double digit returns year after year. Get-rich-quick investing almost always has a steep downside.
- Exiting is stalled – Requests to withdraw from the investment are met with excuses of why you should stay as a client.
There are steps you can take to avoid being a victim. From the start of your relationship with a financial professional, remember the following helpful tips:
- Make sure the financial adviser that is steering your investment money is registered.
- Never authorize access to your personal bank accounts. All purchases should only be conducted from your investment account.
- Purchases over a certain dollar amount should be authorized and/or cleared by you, the client.
- Understand your investment options and make sure they are realistic for you and your family’s short- and long-term needs.
- Read and understand your investment statements. Ask questions if you are unsure of transactions.
Remember, it’s up to you to build your solid financial dream team. This starts with a trusted financial adviser who will orchestrate all of your investment endeavors. You should play an active role on the team and appoint only those people who have your success in mind. –sherry bryant
Sherry Bryant is the principal consultant of Sherry Bryant & Associates, a full-service financial services and wealth management firm in Atlanta.
You can visit the firm online at www.SherryBryantAssoc.com or call (404) 577-9066 for more information.
