Could you fall victim to the next Bernie Madoff scheme? Sadly, much of the U.S. population is still stunned over this outrageous, two-decade ponzi-scheme. I say sadly because it wasn’t the first. Remember Charles Ponzi – the King of the Scheme – or what about Michael Milken, junk bonds galore and so on? And I say sadly because it won’t be the last. Why? Our emotions get the best of us, whether it is greed or fear. Remember the tech bubble? Greed set in when a 15% return was considered lousy. Or what about this most recent Wall Street upheaval? In hindsight, wouldn’t you say it was hard to maintain rational thinking and stay invested?

Today I want to give you a little insight on the next big scheme and how to avoid it. The first one is easy: the next big scheme will occur when greed or fear prevails over level heads. So how do you avoid it? Edmund Burke wisely stated, “Those who don’t know history are destined to repeat it.” Here are the 4 rules of discipline to place and keep in the front of your investment handbook:

1. If it looks and sounds too good to be true…well I won’t say it is, but a BIG warning flag should pop up! So do your due diligence and continue with #2.
By the way here is just one scheme you might run into: The North American Securities Administrators Association did a recent study on senior investment complaints. The Association quoted that free-lunch seminars offered to older investors would be followed up by a sales call a few days later and a recommendation would be made to liquidate all of their securities and buy indexed or variable annuities.

2. Make sure the advisor is legitimate. Anyone can call themselves a financial planner or advisor-scary, but true. A legitimate securities salesperson must be properly licensed, and his/her firm must be registered with FINRA, the Securities and Exchange Commission, or a state securities regulator, depending upon the type of business the firm conducts. And an insurance agent must be licensed by the state insurance commissioner where he or she does business. So start with these:
For a broker, use FINRA BrokerCheck at www.finra.org or call toll-free (800) 289-9999.
For an investment adviser firm, use the Securities and Exchange Commission at www.sec.gov. (Note: this is the firm whom the advisor is associated with and will be noted in the disclosure on all materials used.)
For an insurance agent, check with your state insurance department. You’ll find contact information through the National Association of Insurance Commissioners NAIC at www.naic.org.
For all sellers, be sure to call your state securities regulator. You can find that number in the government section of your local phone book or by contacting the North American Securities Administrators Association at www.nasaa.org or (202) 737-0900.
Additionally, check with these national organizations that issue credentials to check credentials:

Certified Financial Planner Board of Standards-Certified Financial Planner at www.cfp.net
International Foundation for Retirement Education-Certified Retirement Counselor at www.infre.org

Last, but not least, ask to see the advisor’s ADV Form, Part II, which is filed with the SEC. This form contains information about the advisor’s background, services and fees.

3. Know the difference between the individual who manages your money (investment manager) and a custodian. This should not be one entity-if it is, you should immediately begin to research the situation. The investment manager only executes transactions. A custodian is in possession of your account and issues your statements. If a manager wants the check made out to him/herself, this may be a large red flag.

4. Stay rational. Investments are cyclical. If you live long enough you will see investments will rise and fall. And yes, you along with many others will be shocked when it happens. The key is to stay rational. Don’t act on every irrational thought that occurs to you. If you can’t do it alone find someone unemotionally attached to your money and in an unbiased position to help you make wise decisions in good times and in bad.

Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc. VSR does not provide tax or legal advice.