Dave Sather's Money Matters: Beware of the wolf

On Dec. 25, the new Martin Scorsese film, "The Wolf of Wall Street," opened nationwide. The film depicts Jordan Belfort and his "boiler room" operation that paraded as a legitimate brokerage firm.

In the 1990s, Belfort scammed average people out of hundreds of millions of dollars using what are typically referred to as "pump and dump" schemes. The dishonest tactics funded Belfort's outlandish lifestyle.

As individual investors, we are often on the lookout for the over-the-top lifestyles and high-pressure pitches of anyone in the sales business. However, quite often the con artists are successful because they are very low key and appear to be upstanding members of society - like Bernie Madoff.

Whether you are dealing with a Belfort or a Madoff, there are some simple things you can do to protect yourself.

1. First, don't do business with people over the phone whom you've never met. If you schedule appointments at a doctor or lawyer's office, then your financial adviser should be no different. Furthermore, you can learn a lot just by walking into someone's office and observing how they function and treat you.

2. Get it in writing. Ask whoever is advising you to put - in writing - what they are going to do for you. Furthermore, ask them for full written disclosure of the benefits they will receive for helping you - both financial and non-financial (golf trips, ski trips, etc.). Not only will this serve as good reference material should you not fully recall conversations, but it also builds your case should it be legally escalated.

3. Ask for credentials and determine why they are qualified to help you. Just because someone has initials after their name doesn't mean anything. Additionally, don't fall for flimsy credentials that were essentially purchased.

4. Consult with the authorities. Do a background check with Financial Industry Regulatory Authority (FINRA.org) and the U.S. Securities and Exchange Commission (sec.gov/investor/brokers.htm). Are they actually registered with a firm, and what is their disciplinary history?

5. Don't co-mingle your assets with anyone else's and make sure your statements come from a reputable third-party firm. Our clients receive statements directly from TD Ameritrade or Charles Schwab. They do not come from us. This serves as a necessary audit function. If Madoff's clients received statements from a third party, they would most likely still have their funds today.

6. Take your time. When we meet with a potential client, the advice we offer to that person will be very similar whether it is today or a month from now. As such, there is no hurry to make fast decisions. Don't hesitate to "sleep on it," as this will allow you to focus on making wise and logical decisions.

7. Don't chase after "hot deals." Rarely does the hot deal ever exist. Usually, the pressure associated with the hot deal is just a sales technique designed to get people to act fast and emotionally.

8. When dealing in the financial markets, there are no sure deals. This is especially true with the stock market. And yet, Madoff made it seem if he was the only one who could deliver consistent returns when everyone experienced typically lumpy performance. People loved it. However, if it sounds too good to be true, it almost always is.

9. Determine what your adviser's capacity is to you. Ask them if they have a "suitability" standard or a fiduciary obligation. A fiduciary is legally obligated to do what is in the client's best interest - the other does not. The suitability standard often allows for many conflicts of interest that may not be that apparent.

10. Lastly, logical investing requires patience and discipline. Jim Cramer's "Lightning Round" may be entertaining, but it is probably not the best way to produce solid, long-term results. In general, hyperactive investing drives up commissions and taxes - but not returns.

Following these steps will not only give you a fighting chance against the crooks, but it will most likely give better investment results, too.

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.