Ken Fisher's Investment Book on Avoiding Financial Fraud

Ken Fisher's Investment Book on Avoiding Financial Fraud Investing can be daunting for many. Which investment strategy is best? How do options work? What's a derivative? And who do I trust with my investments and life-savings?

A common statement from investors is there are too many products/services and too many advisers to choose from. There are myriad types of investment advisers, from small independent firms to large multi-national conglomerates. Finding the right financial advisor with a suitable product or service is like navigating a complex maze–each turn could send an investor down a dead-end path.

To make matters more complex, how does one avoid falling prey to the con-artists and financial fraudsters prevalent in our society today?

Ken Fisher's How to Smell a Rat

Ken Fisher, Executive Chairman of Fisher Investments, has been in the investing business since the 1970s and oversees over $89 billion for over 40,000 high net worth individuals and over 175 prominent institutions.1 In addition, he has been providing investment insights to the public via his Forbes "Portfolio Strategy" column for over 30 years and his many books on investing and wealth creation. In his 2009 New York Times best seller, How to Smell a Rat: The Five Signs of Financial Fraud, Ken Fisher offers 5 crucial questions to ask when considering hiring an investment professional. In this book by Ken Fisher, questions about investment scams and financial fraud are exposed.

Avoiding Financial Fraud

Ken Fisher recommends keeping emotion out of your decision when hiring a money manager. Bernie Madoff was charismatic, a personal friend of many of his investors, and projected an air of exclusivity. And his clients thought they were receiving consistently good returns for years, without suspicion. But unfortunately for Bernie, et. al., bear markets have a way of crushing a house of cards–and his came crashing down, taking out all his investors, his friends, and charitable organizations.

Due Diligence is Your Job

Executive Chairman of Fisher Investments, Ken Fisher tells readers that no matter who you hire, who you trust, to avoid having future financial blunders, due diligence is your job--no one else's.

"You, yourself, and no one else must do due diligence before handing over any sum of money. Check the guy out! And maybe victims thought they did check out the rats enough. Except, often, victims let someone or something get in the way of their due diligence--an intermediator, a friend, even the SEC. For them, if someone else signed off--like a financial auditor--they might have thought they needn't look closely themselves. Or maybe they didn't realize someone else's due diligence wasn't as rigorous as it ought to be, or that the SEC isn't some form of social insurance against fraud. Or that the auditor might not have audited the reality of the returns, but instead simply the financial condition of the firm."

"America's regulatory bodies aren't perfect. They can't be. They do their best, but there are overlapping areas, conflicting mandates, fuzzy jurisdictions. Some firms have multiple federal and state regulators, while other firms maybe answer to one state body -- all depending on what they chiefly do and sell and how big they are. Too many regulatory cooks mean things can slip through cracks. Even when regulators catch someone they never get credit for it. The SEC did catch Stanford. Exposed him! Went after him! Yet they-'re blamed for not catching him earlier, when fewer folks would have been hurt. The SEC can't get a break no matter what they do."

"Yes, it'd be nice if regulators guaranteed safety. But the truth is, as Ben Franklin said, "God helps those who help themselves." (If you're not a god person, insert whatever power you like.) Though headlines periodically bemoan lack of oversight or too much "deregulation," the finance world is one of the most strenuously regulated spheres in the universe and has been for decades."

Who Are the Victims?

Many investors may believe if they don't have millions to invest, con artists likely won't target them. Sadly, this hasn't been the case. Though Madoff positioned himself as an adviser to just very wealthy investors, many of his victims had relatively much smaller amounts invested with him–a few tens of thousands. For these victims, this often represented their entire life savings.i

Another concern regarding the Madoff scandal was the victims weren't careful stewards of their money. However, people who aren't fools can still be fooled. Of Madoff's alleged $65 billion swindle, $36 billion came from just 25 investors–including hedge funds, charities, and even some very wealthy individualsii–investors who are generally seen as sophisticated.

Anyone can be targeted by a financial con artist, but by knowing common signs of fraud, investors can better avoid becoming a victim.

What Are the Five Signs of Financial Fraud?
1. Your adviser also has custody of your assets–the number one, biggest, reddest flag.
2. Returns are consistently great! Almost too good to be true.
3. The investing strategy isn't understandable, is murky, flashy, or "too complicated" for him (her, or it) to describe so you easily understand.
4. Your adviser promotes benefits like exclusivity, which don't impact results.
5. You didn't do your own due diligence, but trusted an intermediary.

Ken Fisher's How to Smell a Rat: The Five Signs of Financial Fraud, examines each of these signs in detail and demonstrates how to use them to better avoid becoming a victim of this type of fraud.

If you follow these guidelines, you may be successful in choosing the right advisor. For information about purchasing Ken Fisher's investment books, click here.

1 As of 9/30/2017, Fisher Investments and its subsidiaries manage over $89 billion in assets—over $46 billion for North American private investors, over $37 billion for institutional investors and over $4 billion for European private investors.

i "Madoff Victims: Gov't Missed Red Flags," CBS News (March 13, 2009),
http://www.cbsnews.com/stories/2009/03/12/eveningnews/main4862807.shtml (accessed December 1, 2010).

ii http://online.wsj.com/public/resources/documents/madoffclientlist020409.pdf

About Ken Fisher

Ken Fisher
  • 30+ year Forbes "Portfolio Strategy" columnist
  • Recognized as one of the top 30 most influential individuals in the investment industry over the last 30 years1
  • Author of 11 books, including 4 New York Times bestsellers
  • Executive Chairman of Fisher Investments, a multi-billion dollar independent, fee-only investment adviser
  • Among top-ranked market forecasters by CXO Advisory Group2
  • Globally recognized as a financial guru

1Thirty for Thirty, Investment Advisor, 5/1/2010

2www.cxoadvisory.com/gurus. Based on a report completed in 2013 by CXO Advisory Group. The final report, titled “Guru Grades”, contains accuracy ratings for 68 forecasters collected over a period from 2005 to 2012 including market forecasts by Ken Fisher as published in Forbes. Ken Fisher's market forecasts in Forbes represent his personal forecasts of the overall market and are not an indication of the performance of Fisher Investments. Not all forecasts may be as accurate as those in the past. Investing in securities involves the risk of loss. Past performance is no guarantee of future results.

Smell a Rat
Author:
Hardcover: 224 pages
Publisher: Wiley
Language: English
ISBN: 047052653X
ISBN-13: 978-0470526538

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