Pros can con
YOU know that the good old days are gone for good when the world even starts adulterating the milk fed to children. That seems like the bottom of the barrel to me. But its not only your milkman who is running a scam — he is joined by the biggest names in the corporate world to the smallest grocer around your corner.
So it’s no wonder that an organism like the share market which is really nothing but a gigantic money making machine is prone to scams. These range from accounting fraud, rigging, insider trading and audit committees not doing their work to research reports for different audiences, back dating of Employee Stock Ownership Plan (ESOPs) and initial public offerings.
But where consumption of adulterated milk may cheat you of nutrition, participation in a rigged market is going to cheat you of your life’s saving so act with caution:
1. Caveat emptor
During bull runs, people often tend to willingly hand over their money to complete strangers without verifying the stranger’s claims of credibility or even directly invest/buy instruments they don’t really understand. After giving their money, people simply sit back and wait for the returns to start pouring in. This is a surefire way to lose your shirt.
You have to be proactive. Before choosing, research thoroughly. Play one vendor against the other to find out about the loopholes. If it is an insurance policy ask for illustration from the competition to be used as a base for comparison.
2. Look before you leap
If you buy a mutual fund, unit linked life insurance or direct equities, you have to understand that agents/advisors can only do enough to reach information to your doorstep. Thereafter your obligation kicks in.
The person providing financial advice to you has a fiduciary obligation to give you good advice. Of course, that is true only if you are seeking fee-based advice. Check references, understand the compensation system, research their advice, pay attention, understand your investment and remain fully engaged are some of the things you can do.
However, if your banker or broker is your advisor too, then be careful. Set realistic expectations and, if it looks too good to be true, it probably is. By not paying him a fee you may land up paying for wrong advise in other ways. And if you have not hired him (ie you are not paying him a fee), you cannot sack him either.
3. Pour over paper
You have to read and understand every piece of paper that you are given. Every disclosure document must be reviewed until you understand it. Question everything that you find confusing.
Never sign anything that you don’t understand, and always get a copy of everything that you sign. When in doubt, ask. If still in doubt, say NO. It is your money, so do not feel ashamed.
Remember there is no shortage of crooks in the world — there are millions of people out there ready to strip you of your money. However you can help by not making it easy for them. If you’re careless then you’re sitting duck for these scamsters so remember you will get shot!