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A promised 15% return? That’s a red flag 

Nathan Bachrach, Ed Finke and Amy Wagner

Twice each week, Simply Money’s Nathan Bachrach, EdFinke and Amy Wagner are answering your financial questions. If you, a friend, or someone in your family has a money issue or problem, send those questions to yourmoney@enquirer.com

Frank from Bridgetown: My mother, who lives out of town, told me that an advisor is promising her a 15 percent return on her money, and he won’t stop calling her. How can we check him out?
 
Answer:
 Fifteen percent?  Logically, think about this.  Generally, banks are paying far less than one percent APY (average percentage yield) with savings accounts.  On March 15, the Federal Reserve Bank, our nation’s central bank, raised its federal funds rate by a quarter of a percent, now in a range of 0.75 percent to one percent.  And yet there’s someone promising your mother a 15 percent return on her money?

Every investor should know the story of the notorious Charles Ponzi.  In the 1920s, he ran what today is referred to as a “Ponzi scheme.”  Basically, the promoter of a scheme promises above average returns on investments, targeting vulnerable people who have a lack of investment knowledge or experience.  Their marks are often members of an ethnic group or a community, like a church.  The scheme promoter will use avarice (another word for greed), the deadliest of the so-called seven sins, to lure in his victims.  To work, a Ponzi scheme needs a continuous stream of new investors.  High yields are promised to attract them.  Money from the newest investors is used to pay the earlier participants.  Eventually, though, new investors run out, the Ponzi scheme collapses, and the hard-earned savings of its victims vanish.  The most famous of recent schemes was the one run by Bernie Madoff – arrested in 2008, he pleaded guilty to his crimes in 2009, and was sentenced to 150 years in prison.

Before you invest money with any financial advisor or firm it’s up to you to check out their background and experience.  The Financial Industry regulatory Authority (FINRA), has a website where you can easily find this information: BrokerCheck.org.  And if you can’t find the advisor’s name or the firm, this will tell you everything you need to know about whether or not to invest with them.

The Simply Money Point is that your mother has spent her lifetime saving and no one should ever be pressured into investing.  If an advisor won’t stop calling, tell your mother to hang up on him. Most have heard the old saying, “If it sounds too good to be true, it probably is.”  A promised 15 percent return definitely is.


Responses are for informational purposes only and individuals should consider whether any general recommendationin these responsesare suitable for their particular circumstances based on investment objectives, financial situation and needs.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or lawyer. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a Sycamore Township-based SEC registered investment advisor. Call (513) 469-7500 or email simplymoney@simplymoneyadvisors.com.