Things that will get you away from Ponzi Scheme

credits: NewsBTC

What is Ponzi Scheme? — a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. Imagine trusting your hard-earned money — such as your retirement savings, salary, and your savings when you’re working. It will all be used without your permission most like stolen from you. So made-up 5 tips that will help you avoid this scheme.

5 Ways to avoid Ponzi Scheme:

1. Make sure your adviser is legit. If you’re looking for an adviser, ask friends and relatives for recommendations — but don’t stop there. A scary truth is that anyone can call himself or herself a financial planner or adviser, so it pays to check with national organizations that issue credentials. They include the National Association of Personal Financial Advisers, the Financial Planning Association, and the Certified Financial Board of Standards. Each offers a searchable database with contact information for planners in each state. The American Institute of Certified Public Accountants has a list of CPAs who’ve earned the personal financial specialist designation.
2. Dig deep. Put on your gumshoes and find out how long the adviser has been in the business. Ask to see his or her ADV Form, Part II, which a planner files with the Securities and Exchange Commission. It contains information about the adviser’s background, services, and fees. Check for complaints filed though your state’s securities regulator (contact information is available here). A site visit might also be helpful, says Tim Kochis, chief executive of Aspiriant, a wealth management firm with offices in San Francisco and Los Angeles that caters to high-net-worth clients. “Reputation and apparent track record are not enough,” he says. “You have to go way beyond that to really investigate the operations of the org and find out if what is claimed is real.”
3. Understand the difference between a manager and a custodian. A custodian, which would include the Fidelitys and Charles Schwabs of the world, is in possession of your investment account and issues periodic statements of transactions. The manager of assets executes those transactions. “A lot of people fail to understand why it’s important to separate these functions,” says Kochis. “Frauds almost always occur when those two things are put together.” In other words, look out for an investment manager who wants complete control of your money and asks that checks be made out to him or her. You can sleep tight if your funds are in the custody of a broker-dealer firm regulated by the Financial Industry Regulatory Authority and backed by the Securities Investor Protection Corp. But make sure you receive at least quarterly statements, says Mickey Cargile, founder and managing partner WNB Private Client Services, which is based in Midland, Texas. “The key is that you get it directly from the custodian and not from the adviser.”
4. Be skeptical of pitches for exotic or obscure products. Banks, brokerages, and planners offer a wide range of financial products, including exotic investments that incorporate leverage and complex derivatives. If you get a pitch for an asset class you’re not familiar with, make sure you understand the process by which it achieves returns. Jim Wiandt, editor and publisher of the Journal of Indexes and publisher of IndexUniverse.com, puts it like this: “If you don’t understand it, you shouldn’t be in it.” Cargile takes it a step further: “Only invest in transparent assets. We don’t invest in anything we can’t turn to cash in three days or less, which limits us to stocks, bonds, mutual funds, and exchange-traded funds.” A hedge fund, which isn’t required to disclose its holdings, is an example of a nontransparent investment. Also, be especially wary if your adviser downplays or denies risk.
5. Be especially vigilant if you’re nearing or in retirement. According to a recent study by the North American Securities Administrators Association, nearly half of all investor complaints submitted to state securities agencies came from the senior set. According to the association, bogus operators sometimes con older investors through free-lunch seminars that are followed by calls from salespeople a few days later (a common recommendation is to liquidate securities and use the proceeds to buy indexed or variable annuities).

Oh, and one bonus tip: If someone promises an investment return that is unnaturally high or steady, the warning alarm should start sounding. For example the recent incident of Bit Aeon, they’ve shut they’re whole system without informing their investors. And that one of the very example of Ponzi Scheme.