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Protect Yourself from Fraud

Protect Yourself from Fraud

The front page of today's NZ Herald (5 September 2012) covered the case of Mrs Jacqui Bradley of B'On Financial Services who was found guilty of 75 counts of fraud yesterday. Mrs Bradley, and her now deceased husband, have stolen about $15m from people who thought they were clients rather than victims.

You can read details of the case here

Thief in a balaclavaEssentially the Bradley's took money from people and said they'd invest it but simply spent it! No doubt the "clients" received fancy reports every so often showing what their investments supposedly were and also no doubt showing nice investment returns. New victims were usually friends of people already being unwittingly ripped of by the Bradley's.

This was how Bernie Madoff, the man who has ripped off the most money so far operated in New York. But, closer to home I believe there was a man operating in Cherrywood, Tauranga some years ago who operated in the same way.

For those of us in the finance industry who operate legally and ethically (not always the same thing) this sort of case is particularly annoying. We always put our clients best interests first and simply cannot fathom how these people get away with this sort of behaviour for so long. However combinations of circumstances can and do turn normally nice law abiding people into fraudsters.

Steps to take to protect yourself from this type of fraud

There are a number of steps that you can take to minimise the risk of someone defrauding you in the manner described in the Bradley case.

  1. Almost NEVER pay money you are investing directly to your financial adviser or their company. The money you are investing should go straight to the fund manager, share registry, sharebroker or wrap platform, that has processed the transaction, a third party.

    Of course you might be asked to pay fees to your financial adviser. As long as you are told about them before the transaction and they are reasonable thats OK, we do have to pay our bills and feed our families.

  2. Check the "bona fides" of the outfit you are paying the money to. The internet is useful for this. If they don't turn up in a Google search, beware! But it can be as simple as ringing them up, checking that the physical address actually exists. Warning signs are documents that are photocopies or have obvious spelling mistakes. Use your common sense.

  3. In rare circumstances you might be asked to deposit money to the advisers trust account. Be wary, ask why the money can't be paid directly to the controller of the investment. The only reason should be to facilitate the payment to the third party, making it easier and/or cheaper for you. Ask if there is an alternative, if there isn't expect a really good reason. Even if you do decide to use the trust account request evidence that the account is independently audited.

  4. You should always ensure you receive verification of your initial investment from the company or fund manager you are investing with. Depending on the investment this should arrive reasonably promptly, hopefully within a week but certainly within a month. If you don't get it get your adviser to chase it up. Don't accept excuses, if they can't confirm your investment why are you investing with them?

  5. Ensure you are receiving updates from the company or fund manager at least once a year. Any legitimate investment is required to communicate with their investors regularly. It is acceptable in New Zealand to use your financial advisers firm as a mailing address for investment related correspondence, but make sure you sight the originals occasionally.

  6. Don't rely solely on reports prepared by your adviser to prove that your money is where they say it is.

  7. If in doubt ask, and if you don't get a satisfactory answer ask someone else. Reputable practitioners in the industry will be happy to explain to you whether what you are being told is reasonable or if it "smells fishy". Honest practitioners will be able to easily prove to you that your money is legitimately invested and will have no problem with being asked to provide evidence. If they appear hurt or upset that you have asked them for proof that is almost a sure sign that there is something fishy going on.

    And finally

  8. Don't assume that just because the person you are talking to seems really nice, is a friend of your friend, or a member of your church or club, that they are honest. Fraudsters get away with what they get away with by being excellent actors, charming and friendly.

If you have any doubts about your financial adviser please don't hesitate to give us a call on 07 578 3863. We know most of the legitimate operators in the local industry and if we don't we'll be happy to make discrete enquiries for you.

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