When teaching my Income in Retirement college classes, there is a section on preservation of capital embedded within the investment strategies portion. In my book, preservation from fraud and theft are even more important discussion topics because the methodologies to separate you from your money are many. And they are often aggressive. In my recent reading ‘travels’, I came across this article about a gentleman who has written an interesting treatise on the subject and so is worth sharing. His findings bear witness to the necessity for frequently reminding folks of the dangers of being “taken to the cleaners”. The following article was written by Gregory Bresiger in FA Magazine.
If you think you’re not affected by tube advertising, then the Madison Avenue big shots are smiling. They believe you’re hooked.
And, using that same principle, William M. Francavilla, the author of The Madoffs Among Us: Combat the Scammers, Con Artists, and Thieves Who Are Plotting to Steal Your Money, quotes con artists who say that, if you are convinced you could never be conned, you’re already partly down the road to getting hoodwinked and you should check your wallet.
How bad is the scamming problem?
Francavilla, a CFP, cites various media reports, saying “scams exact a huge toll on consumers and society at large, with annual costs in the United States alone exceeding $100 billion.” He concedes that it is likely much worse—many people who are scammed are reluctant to report it.
The Madoffs Among Us is sobering and interesting. If you want to prevent your assets from ending up in somebody else’s offshore account, Francavilla argues that you have to be skeptical and dispassionate, do your research and due diligence and check in with third parties.
And much to his credit, he doesn’t argue his system or any system is completely foolproof. He doesn’t believe a foolproof system exists.
His advice is “merely an attempt to equip you, the consumer and investor, with tools to fortify and protect your wealth.” And you’ll need all the anti-scamming tools you can get.
It’s easy, Francavilla contends, to con an individual, a group, even a whole nation for long periods. Just look at distant and recent history.
He points to WorldCom’s Bernie Ebbers and Enron’s Kenneth Lay (President George W. Bush’s beloved “Kenny Boy”) in a pantheon of crooks and con artists who all seemed at one time to be brilliant successes—the toast of the political, investment and media elite.
Still, they had a lot of predecessors. Indeed, there have been Bernard Madoffs for centuries. Francavilla points specifically to the monetary madness of early French central banker John Law.
Law’s easy money creation schemes under Louis XV initially seemed to save France from the damage caused by the king’s predecessor Louis XIV, who had ruined the country. But, as usual with easy money schemes, they ended in disaster. One of the few disappointments of this overwise commendable book was the author’s failure to draw what I would believe is an obvious parallel between Law and the once-lionized central banker of our times, Alan Greenspan.
France under Louis XIV, the infamous Sun King, and his successor Louis XV, had a predilection for spending, wars, spending, central planning and more spending.
The author, in focusing on the Laws, Lays, Ebberses and their effect, warns there is a secondary problem of their chicanery. At the same time the Madoffs flourish, many seem to accept a culture of debt. Both scams and excessive debt are hurting us, the author says.
He warns that unabated debt “will unwind even the most robust economy. Excessive debt has traditionally caused more recessions, depressions and even wars throughout history.”
The author also argues that Bernie Madoff won’t be the last to perform highway robbery. Madoff’s scheme was ignored by regulators. Indeed, he was actually praised for years before people came to their senses, realizing he’d pinched the silverware.
Possibly the most difficult and courageous part of the book is when the author seems ready to eat his own: He cites a 2012 study conducted by the CFP Board of Standards—the “Senior Financial Exploitation Study.” In examining the work of advisors, it found some CFPs who badly advised or might have bilked clients. In other words, CFP Madoffs.
Some 74 percent of investors may have purchased unsuitable products from these advisors; 58 percent of the advisors may have omitted important facts; 48 percent may have misrepresented an investment; and, most alarmingly says the author, 19 percent committed fraud with intent or lying. It’s the last number “that concerns me the most,” the author writes.
Advisors aren’t supposed to do that. They are supposed to be independent and above sales quotas. They are supposed to consider the big picture for clients.
But can we all just be more careful, less emotional and more dispassionate? Can we heed the message of the author and avoid the Madoffs who are waiting for us in various investment and political forums?
The author, who urges the investor to carefully do research whenever he or she is spending, investing or trying to help the poor, isn’t an optimist about Madoffs. He sees them in many places and wonders about the ability of the average person to steer clear.
He cites Louis Harvey of Dalbar Associates, who writes, “Attempts to correct irrational investors’ behavior through education have proved to be futile. The belief that investors will make prudent decisions after education [has] been totally discredited.”
One ends this book with the author’s commonsense warnings, which can possibly help one’s effort to avoid mistakes by learning from history.
History is not “bunk.” It is often a litany of mistakes, train wrecks and outrageous promises (just pay attention to any political campaign). Yet understanding how they happened through careful reading can sometimes prevent us from falling down the same hole as previous generations. And the author has skillfully used history in this book to help improve the odds that readers are not the next victims of another Madoff.
(Disclosure from the article’s author: In earning my geld to survive here in taxing New York, the capital of the institutional political con class, I worked for some 15 years for Traders Magazine. My boss there once interviewed Bernie Madoff. I once spoke to one of Madoff’s sons, Mark, for a story I was doing on market making. No, I didn’t think at the time that he was trying to pick pockets and still am not sure to this day that he was. Mark Madoff, who insisted that his father hand himself over to the federal authorities once he owned up to his wholesale con, committed suicide.)
If you’re interested in reading this book:
The Madoffs Among Us: Combat the Scammers, Con Artists, and Thieves Who Are Plotting to Steal Your Money; By William M. Francavilla, CFP, (Career Press, Newburyport, Mass., $15.99, 224 pages).