Advocis: There are Ponzi scheme warning signs

Toronto, March 14, 2011 – In light of the declaration by the Competition Bureau of March as Fraud Prevention Month, Advocis, The Financial Advisors Association of Canada has put up a few red flags as a means of helping people avoid becoming victims of a Ponzi scheme.

“A Ponzi or pyramid scheme is an investment opportunity built on a fraud that will eventually collapse,” says Advocis president and CEO Greg Pollock. “The first and most important warning sign is when a so-called ‘advisor’ promises you consistent returns on the investment. The reality is that stock markets go up and down. Legitimate investment results will vary.”

Other warning signs include pressure to invest beyond your comfort level. An ethical and responsible financial advisor or planner will understand your financial goals and objectives but, most importantly, how much money you are willing to risk in any investments. A fraudulent advisor will also supposedly place all of a victim’s money into one financial vehicle when in fact returns are that of the investors’ own money or more recently recruited investors.

Another warning sign is a promise of exclusivity or a “special deal.” Legitimate investment opportunities are generally available to a wide range of clients.

“Each investor is their own best advocate,” said Mr. Pollock. “They should take the necessary steps to research, verify and question the advisor and his recommendations. But in the end it comes down to the simple old saying, ‘if it’s too good to be true then it probably is.'”

There are steps an investor or potential investor can take to avoid becoming a victim of this crime. The first step is to do the research. Get referrals from other clients. Does the advisor have a license to do business? Does the advisor have a professional designation?

The next step is to verify all the information gathered. Verify that the money invested is going to a legitimate third-party financial institution. The statements should include key information such as a street address (not a post office box), a list of the investments, and their activity over a period of time. Verify with the appropriate licensing body that the advisor is duly authorized to do business in the province.

Finally, an investor should ask questions of the advisor. A fraudulent advisor may refuse to answer questions or may dismiss your questions with an “it’s too complicated to explain” response.

Mr. Pollock’s last piece of advice is to anyone who feels they may have been a victim of a financial advice fraud. He advises these people to not feel embarrassed or ashamed and to tell someone in authority. This can include the RCMP, The Canadian Anti-Fraud Centre, or provincial insurance or securities regulators. Also, Advocis investigates and disciplines its members for any violation of its Code of Professional Conduct. The Code requires that members act competently, diligently and with integrity, in the client’s best interest and according to both the spirit and letter of the law.

About Advocis

Advocis, The Financial Advisors Association of Canada, is the oldest and largest voluntary membership association of financial advisors and planners in Canada. With more than 11,000 advisors and planners in 42 chapters across Canada, Advocis members provide financial advice, product service and employee benefit planning to millions of Canadians in a number of areas including estate and retirement planning, wealth management, risk management and tax planning. For more information about Advocis, visit