9 tips to avoid fraud when it comes to your investments

The recent Ponzi schemes put in place by hedge fund manager Bernard Madoff or the alleged fraud commited by "financial advisor" Earl Jones sensibilizes us more to possible scams commited when it comes to our investments. In this context, I offer you a list of criteria that aim at helping investors reduce the risk that they will be victims at some point to these types of frauds.

Avoid the "Norbourg" and "Earl Jones" of our world

Investment advisors must register with the Canadian Securities Authorities of their province and also with the Investment Industry Regulatory Organization of Canada (" IIROC ").

The IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. You can get more information on this organization by consulting their website: www.iiroc.ca/English or by dialing 514-878-2854.

The Autorité des marchés financiers (AMF) is the body mandated by the government of Québec to regulate the province's financial markets and provide assistance to consumers of financial products and services. You can obtain additional information when consulting its website at the following adress: www.lautorite.qc.ca or by dialing 514-395-0337.

The Canadian Investor Protection Fund (CIPF) ensures, within defined limits, that your cash and securities are protected if you are an eligible customer of an investment dealer that is a Dealer Member of the Investment Industry Regulatory Organization of Canada (IIROC).

The CIPF offers protection to clients of an investment dealer who has undergone or could undergo financial woes deriving uniquely from the insolvency of dealer member. The CIPF has fixed a limit equal to one million dollars relatively to the coverage offered with regards to a general account and each distinct account of a client which occured losses on securities, cash, futures contratcts and contracts on merchandises.

1. Verify the registration – Verify the registration and antecedents of the securities or asset management firms and that of its representatives in securities that they supervise. Also, let's not neglect Google, the simplest way to initiate research on a person or corporation !

2. Evaluate the workforce – Try and find out who makes the investment decisions and who puts into place the investment strategies. They should be people with the necessary experience, integrity, competence and education. Look for professional accreditations such as : CFA - Chartered Financial Analyst, Pl. Fin. - Financial planner, RLU - Registered Life Underwritter, CA – Comptable agréé.

3. Clearly comprehend the investment strategy – Investment strategies and vehicles should be clear and understandable. The nature of the risks at hand can vary greatly and should be understood. Warning sign: « Stay far from what you don't understand. » (Peter Lynch)

4. Be wary of garanteed gains, rapid gains and special access – Serious investments specialists do not promise guaranteed success. The shenanigans to gain rapidly in a legitimate way do not exist, neither do investments which give high returns and little volatility.

5. Do not give power of attorney relatively to your funds other than to a trustworthy person that a you know very well – An investment advisor should not have the power to dispose of funds that come from a client's account. Also, the investment advisor should have no power other than that of negociating the securities. Warning sign: Never write out a check to the name of an individual in order to make investments. The checks should always be written out to the order of a well-know bank, brokerage firm, trust, or insurance company.

6. Make sure that the functions of control and safekeeping are executed by an independent third party – Make sure that the functions of investment advice and safekeeping are separated. You can ask for a statement from the "depositary", an independent third party, that will make a report of the holdings in the portfolio and their value, independently from the investment advisor.

7. Verify that there are verifications and confirmations of the results declared independently – Investors should get account statements verified independently relative to their investments. Warning signs: a) the investment advisor is also responsible for the prepareation and publication of statements and reports destined to clients without confirmation of a third party, b) the declared results appear to good to be true. Make sure that your investment firm has their numbers verified by an independent verifyer.

8. Understand the regulatory environment of the territory – Investors should also be prudent with regards to foreign investments. A good number of them are legitimate, but subject to a different regulatory environment. As a result, it could be more difficule to locate or recover your money out of the country should a problem surface.

9. Ask questions – By asking good questions and obtaining pertinent information, you become an informed investor that crooks will have more trouble deceiving.

These tips cannot guarantee that you will absolutely avoid fraud with regards to investments, but they will help you as a preventive measure to make more informed decisions. I hope you find this information helpful!