How To Keep Your Money Safe

Welcome back to We're Talking Money Short Takes. We wanted to do an additional episode this week based on the news that we just heard from the SEC filing. A former Morgan Stanley advisor, Shawnee Goode, based right here in Wilmington, has been accused of a Ponzi scheme costing close to 5 million dollars to his clients. Certainly this one hit close to home, being in Wilmington, and so we wanted to do a quick hit podcast just based on red flags, things you should be looking for, thinking about whether you're interviewing a new advisor or if maybe you have a bad feeling about what is currently going on in your planning. First of all, Phil, thanks for filming this on short notice, but I would love to just hear your general thoughts on what's going on and what the article had mentioned that we all have been reading.

Ponzi schemes go back decades, decades, decades, and they probably never go away, unfortunately. Ponzi schemes don't have to be successful, but people have to be vigilant. They have to think, and they have to recognize when something seems too good to be true. Probably a lot of us grew up with our mothers or fathers saying, if it's too good to be true, it probably is. When somebody's promising you money or return, a performance that's unusually high or that nobody else is getting, there's probably something wrong with that. So when we hear somebody say to us, well, I'll give you a 10 or 15 return, you need to check that, right? That should be an immediate red flag to your point.

First, though, let me just say that whether it was Morgan Stanley or anybody else, these things happen. I've seen them a lot in my career. This one is a smaller one, but five million dollars is a lot of money, and it is obviously going to create pain and a lot of lives. That's the sad part here. So first, we feel for the families that are affected. I cannot imagine what they're going through. Some of them, that could be the rest of their life money. It could be everything that they had.

They happen in every community, and it's hard to believe that right here in Wilmington, North Carolina. The news broke last night, and here we are, and these offices are literally a stone's throw from our offices. We can almost see their building. So they're right here, and it's sad for the families. And it really hurts me because there's so many of us that do this business the right way, that are very proud of what we do, and then you have people like that who go astray, and it really puts a black eye on the business, on the profession. We can get through that. It's not as bad as what the families have to deal with. It really bothers me that these kind of things happen, so I just thought we come on set here and talk about it so we can give listeners something to think about.

Phil, what are some of the major red flags that people should be aware of when interviewing a new advisor, or anything that their advisor is currently promising them or guaranteeing them, or anything along those lines?

After being in the investment business, in the wealth management business, for three decades, you read about Ponzi schemes a lot. What the client should look for first and foremost is, is it too good to be true? What I said a few minutes ago: if someone's offering you a six or ten or twelve or fifteen percent return with no risk, or it's guaranteed, then they should be able to support that with solid documentation, and there should be some proof around that, and you shouldn't be the only one hearing of that news.

But that's how these Ponzi schemes come off a lot of times. People will sell it to folks that they know, maybe people they go to church with, maybe people that they've done business with, people that they have a solid enough relationship with that they can persuade them to do things, and they can make certain things sound really, really good, and people will fall prey to that. And then what do they do? They start telling their friends about it, which is exactly how the Ponzi scheme works.

And so for our listeners that don't know exactly how this works, let's just say that investor A comes in and they bring this person a million dollars. That million dollars has to do a couple of things. One, it's got to pay that person the promised return, and if it's never invested, then there's no return, so you're literally eating the principal to pay them back. If you promised them percent, you're giving them 10 000 a year. Well, that can last a long time, but then the person running the Ponzi scheme, they want to live a certain lifestyle, and so they're going to take a big cut of that money. And so as they live on the money, the money's not being invested, and they're also trying to pay the investor. Well, now they've got to go find another investor so they can keep this cycle going, and that continues and continues, and it can get really large. In this case, it's been going on, they say, in this Morgan Stanley case, 10 years and about 5 million.

But what a person should be looking for is, is it too good to be true? And if you're not sure if it's real and you're not sure that you're getting the right proof, call someone like our firm. We'll do the digging for you. You may never do business with us. We'll absolutely do what we can to help you stay out of harm's way. I think that is part of what we're obligated to do for the consumer.

Now, the other things that a consumer can do is watch who you're writing the checks for that investment. Watch where you're writing those checks to, in terms of the bank or the person. Our clients will tell you, if they write a check to OmniStar, we return it to them. We don't take that check. We're not allowed to cash that check. We have to send it back to them. They then write us a new check to Fidelity, and that goes into their account at the custodian. But if you're writing a check to your investment advisor in his name or some other business name, and he says, well, this is just my business and I run it through this run

Phil, what questions should someone ask, not only a new advisor maybe that they're interviewing or they were introduced to, but what about their current advisor? What are some great questions that clients should be asking them?

Yeah, to avoid things like a Ponzi scheme, they want to ask: Who is my custodian? Where is my money housed? What happens if you are no longer my advisor? What happens if you're terminated, or maybe you just decide to change careers? How would I get in touch with my money? Where is it? How should I make checks payable? And then make sure they give you proof of that. Ask the person what their compliance looks like, and if something doesn't seem right to the client, who shall I call if I have a compliance issue? When you ask an advisor those questions, if that advisor has any, even the slightest inkling that they might want to do something wrong, you start asking them those questions and it will bring them right back to center, because they know you're asking the right questions. You've got your eyes open.

Yep. One of the things that we've heard a lot, especially over the past five years or so, is fiduciary, making sure you're working with a fiduciary. So for all of our listeners out there, can you talk about what a fiduciary is and why it's so important to have a fiduciary as an advisor?

Such a great question, and that word gets thrown around a lot. So we hear it a lot today. What is it exactly? Fiduciary simply is, it's not a, there's no credential for it. You don't go to school for this. A fiduciary, anybody can be one. It's just simply someone who stewards another person's money in the right way at all times. That's it, by definition. And you have to be the person that the fiduciary definition describes, and if you're not that person, you don't really want to call yourself a fiduciary, because you're probably going to let somebody down. But the bottom line is a fiduciary is someone who is always going to do the right thing, no matter what.

In our business, in our profession, Dustin, you don't have to be a fiduciary. You can claim to be one, and as long as you do the right thing, then that claim is likely true. No matter what a person calls themselves, be aware that it's up to you. Ultimately, it's the client's responsibility, the investor's responsibility, to be judicious with their money, to ask the right questions. Now, the person that might mislead you or misguide you or steal your money, they're certainly going to pay for that, but in terms of debt to society, maybe it's going to be imprisonment or something like that. They may not be able to pay you back. So when we say they're going to pay their debt, doesn't mean you're going to get your money back.

Where should the listener go if they're unsure if an advisor is acting in their best interest, or if they're interviewing a new advisor but they're not sure where? What are some of the resources out there for people like that?

So it's a great question. So one, there's BrokerCheck.com. You can check on them. You can find out if they're licensed. North Carolina or any state has a hotline you can call, and you can get information on investment advisors or brokers. If you want to know if their firm is legit, are they licensed in the state or at the federal level, you can find that information out very easily.

Now, whoever you're working with, if you're interviewing an advisor, if you are thinking about changing advisors, simply ask. There's a new form that is mandated. It came out a couple of years ago, and it's called Form CRS, and that CRS is all about knowing the advisor. It's knowing what you need to know about them, and so that form is an obligation on the advisor's part to be given to the client. Just ask them for it. Let me look at your Form CRS. Let me take a look at your ADV. That's public knowledge, by the way. It sits out on the SEC website.

There is a host of places and a host of things available to the consumer. Problem is, Dustin, the consumer doesn't always go get it. They find a relationship, they think this person's going to take good care of them, and most of the time they do, I want to preface that, but you still have to be vigilant. And so there's lots of resources, and if you don't know those resources, or maybe I wasn't clear on some of them, call us. You don't have to do business with us. If you simply want to be better educated, you want to get some good advice or get some good information to help you make better decisions, we'll share all of that with you, wherever you're located, but especially if you're here in Wilmington. For us to have a positive impact on our community however we can is really what it's all about.

So appreciate your time, Phil. Thanks for your insights on all this. Please share this one. It's very timely. This just happened yesterday. We're filming this on Tuesday; the article came out on Monday, so just recently put this out. So make sure everyone gets it, they can see it, and if you need anything, please don't hesitate to reach out to us, and we'll see in the next episode of We're Talking Money.

Thanks for joining us on We're Talking Money. If you'd like to learn more, check us out at omnistarfinancial.com. Subscribe to the show on YouTube, follow us on Instagram and Facebook. Tell us in the comments section what topics you'd like to hear in upcoming videos. If you enjoyed the show, give it a thumbs up and share it with friends.