One of the responses I received regarding Cyprus-based Genius Funds really puzzles me.  In one of my blogs, I ask “is Genius registered with any securities commission or any other regulatory body?”

The comment back was “YES! If you had done your due diligence you would have been easily able to find out that they are licensed to operate as a Cypriot Investment Services firm since 2007.”

They may be incorporated as a company in Cyprus, but they are not registered with the regulator to trade securities.   Check for yourself  on the Cyprus Securities and Exchange Commission . 

We issued a temporary order  against web-based Genius Funds on February 12. Since then other Canadian provinces  have also issued warnings to investors not to do business with this Cyprus-based company. 

I have been writing about this for a week to question the very high returns Genius is offering to investors and to ask anyone interested in this fund to do their due diligence first before sending any money. 

Get a second opinion.  Ask your banker or accountant what they think of Genius’ offer of 1.2% daily or 9% weekly returns. 

Check out our program “Protect Your Money” – it will help you do your homework.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

I have received more surprising responses to my series on Genius Funds.  You will recall that we issued a temporary order  against this Cyprus-based company citing its breach of various securities laws.  Since then New Brunswick  and Manitoba  have both warned investors not to do business with this Cyprus-based investment fund.

One comment, in particular, interested me:  “…managed Forex account opportunities if you know where to look that offer 25-40% returns.”  This was in response to me saying “in my view, whopping returns of 1.9% daily and up to nine percent weekly are impossible to achieve.”  

So let’s talk about FOREX, which stands for foreign exchange, for a minute. The FOREX market is about changing currency for another by simultaneously buying one and selling another.  Profit and losses are dependent on the fluctuations in the exchange rate between two currencies.

Before you invest in the FOREX market be aware that:

1. The FOREX market is complex and volatile - it takes expert knowledge to track and understand the many variables that affect currency exchange rates.  Without this knowledge, you are likely to lose your money.
   
2. There are FOREX scams – the promise of high returns with low risk in the FOREX market is a red flag that the opportunity may be a scan.
   
3. Trading on borrowed money can increase your losses – the more money you borrow to invest in the FOREX market, the higher the risk of losing it.

It does not take a genius to question such high returns – returns that are higher than any bank or financial institution can offer.  It just takes common sense.

With the temporary order, Genius Funds cannot engage in any investor activities in the province of BC.  Nor can it trade in securities.  Tell your friends.  Do not do business with Genius Funds. Check out our program “Protect Your Money” it will help you do your homework.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

The Manitoba Securities Commission  issued a warning to local investors not to do business with Cyprus-based Genius Funds because it may be operating illegally in the province.  The Vancouver Sun  also referred to Genius Funds in a recent article about investment fraud month.  Last week, the BC Securities Commission issued a temporary order  against Genius Funds for allegedly breaching various securities laws.

Genius Funds is offering high yield investment funds that supposedly give investors between six and nine percent returns per week.  In my opinion, these returns are impossible to achieve without being a Ponzi scheme, where money from later investors is used to pay the promised return to earlier investors.

Genius Funds is offering people commissions to refer others to the fund to make an investment.  Genius Funds is being promoted on social media websites and in online classified ads in different Canadian provinces.

Please tell your friends and family not to invest in Genius Funds.  If you know anyone who has had dealings with Genius Funds, please file a complaint on our website or contact our inquiry line (1 800 373 6373) toll free across Canada.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

We issued a temporary order  against web-based Genius Funds and the New Brunswick Securities Commission  issued an Investment Alert against Genius Funds. Our temporary order alleges that the Cyprus-based company has breached various securities laws.

Genius funds offer whopping returns: 1.9% daily on one fund and up to nine percent weekly on a second fund.  In my view, these returns are impossible to achieve.

Some investors have noted that Genius has a “good track record” – and go on to say that “they never failed to pay me.”  This is from an investor of five months.

Is that reassuring?  Have we already forgotten the lessons learned from Bernie Madoff  and Earl Jones  – both of whom were in business for a long, long time before their schemes collapsed and investors lost millions?

Much more important are the questions that you need to ask to determine if it is a legitimate investment. 

Why not ask your bank manager or someone independent of the deal what he or she thinks about this investment?

Are there any restrictions on reselling or getting your money back?  Is Genius registered with any securities commission or any other regulatory body?

It does not take a genius to question why these funds can offer returns that are much higher than any bank or financial institution. It just takes common sense.

With the temporary order, Genius Funds cannot engage in any investor activities in the province of BC.  Nor can it trade in securities in BC.  Tell your friends. Do not send any money to Genius Funds. Check out our program “Protect Your Money” – it will help you do your homework.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

I continue to write about this Cyprus-based company because people may be seeing their offers of 1.9 percent daily or nine percent weekly on social media websites where people are promoting Genius Funds.  They may also be seeing the advertisements in on-line classified ads.

Last week, we issued a temporary order against Genius Funds  alleging that the company had breached various securities laws. Yesterday’s blog talked about responses to my blog that were surprising to me. Comments like “any person can …make over 100% on their money.”  In my opinion, claims of high returns raise all sorts of red flags.

We are a securities regulator and unfortunately, we see all to often that people fall for the age-old offer of high returns with no or low risk.  There is no such thing as high returns without risk.  Doesn’t exist.  Not possible in a legitimate investment.

Take Gold-Quest International for example. We issued an investor alert in March 2008 stating that we were investigating an investment that offers people unusually high annual returns – 87.5 percent – and commissions for bringing in new investors.  In this case, Canadian investors were approached to invest in a “family and friends private placement program” in which Gold-Quest International, an offshore company, would trade in foreign exchange markets (FOREX) on their behalf.

Persons supposedly representing Gold-Quest have told investors that they can earn money by referring new investors to the program.  They were offered commissions of 10 percent of the amount the referred person invests.  These people were not registered to sell securities in British Columbia.

So please pay attention.  Don’t believe everything you read on the internet.  Do your homework.  With the temporary order, Genius Funds cannot engage in any investor activities in the province of BC.  Nor can it trade in securities in BC.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

I received two surprising responses to my blog last week about Genius Funds.  In my blog, I said “If you can believe it (and I hope you don’t) Genius Funds is offering payments of up to 1.9 percent daily on one fund and up to nine percent weekly on a second fund.”  I reminded people of the old adage, if it is too good to be true…

The reason I was writing about this Cyprus-based company was because the BC Securities Commission issued a temporary order  against Genius Funds, citing its breach of various securities laws.

Here’s what one correspondent said: “Any person can invest in Funds anywhere and make over 100% on their money.” Here’s what another one said: “Genius has a “lock in” period of capital for 9 months so they can actually work in stock market, futures and forex with your money for 9 months…they pay a very high interest, but they also diversificate in all the world.”

Let me take you back to a Ponzi scheme called Manna Trading Corp.  In this case, Manna convinced investors to loan it money by promising significant monthly returns.  Manna told them that their money would be managed by experienced traders with a history of producing exceptional returns through foreign currency trading. Manna was promising returns of not less than 20% a month. Sound familiar?

At the Manna hearing, Dr. Peter Klein, an expert in international banking and trading, gave an opinion about promised returns.  He concluded it was simply impossible to generate returns of even 5%, month after month, through any legal trading or investing in any financial markets. 800 investors lost $10m US in this scheme.

 From my experience, all Ponzi schemes offer high returns. That’s how they extract money from investors. 

So please pay attention. With the temporary order, Genius Funds cannot engage in any investor activities in the province.  Nor can it trade in securities in BC. 

Click on Let’s Talk about Investing to read other blogs on this topic and others.

 Last week, we issued a temporary order against Genius Funds , alleging that the Cyprus-based company had breached various securities laws.

So let’s start with the name of the fund. I believe it was chosen to convince investors that these funds are special because the word genius means a person or body of work of surpassing excellence. A work of genius, when it truly is genius, will fundamentally alter the expectations of its audience.  However, in this case, Genius Funds is offering returns to investors that go beyond surpassing excellence – in my view they are impossible to achieve. 

If you can believe it (and I hope you don’t) Genius Funds is offering payments of up to 1.9 percent daily on one fund and up to nine percent weekly on a second fund. Remember the old adage if it is too good to be true…

There are social media websites where people are promoting Genius Funds. Additionally, Genius Funds advertisements appear in online classified ads in different Canadian provinces.

With the temporary order, Genius Funds cannot engage in any investor activities in the province. Nor can it trade in any securities in BC. 

So spread the word. Tell your friends. Do not send any money to Genius Funds.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

The last couple of days of media coverage make you believe that maybe there is a Ponzi scheme epidemic going on in North America.  Take these three items. 

• Earl Jones sentenced to 11 years  Globe and Mail 
• Pigeon Fever  Morley Safer on 60 Minutes
• Mensch next door charged with Ponzi scheming: printer and master pianist suspected of $27 million fraud  Globe and Mail

I urge you to watch Morley Safer and read the Globe and Mail piece. The well-worn phrase, truth is stranger than fiction, is definitely the case in the stories told here.

Even though most people now understand how a Ponzi scheme works, I am going to list five steps to running a Ponzi scheme:

1. Approach investors whose trust is easy to win over.  Friends and families are less likely to ask questions and overlook red flags.
2. Create a highly lucrative investment strategy which promises high returns that are hard to turn down.
3. Provide a convincing paper trail – use letterhead of reputable banks, accountants and even regulators!
4. Ask the initial investors to bring in more friends and acquaintances.  This is the rob Peter to pay Paul aspect.
5. Make it feel like an exclusive offer.  It makes the investor feel special, one of a few who will make lots of money.

Earl Jones was sentenced to serve 11 years.  Because his crime is considered non-violent by the courts, he might only serve one sixth of his sentence and be out of prison in 22months – fall of 2011.  Cold comfort to the victims who have lost their life savings.

Ponzi schemes will be with us for a long time, no matter how severe or light the penalties are.  Investors must learn to think twice before investing their money, especially if someone close to you makes the offer.  Don’t put your trust in close friends and family; put your trust in doing your homework and getting a second opinion.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

The saddest part about the 158 clients that Earl Jones defrauded out of $50 million, many of whom crowded into a Montreal courtroom Monday to hear him sentenced to 11 years in prison ? It didn’t have to happen.

Jones held himself out as a legitimate financial advisor. But if his clients had checked to see if he was registered to provide the services he pretended to provide, they would have seen that he was not. Not finding Jones among the tens of thousands of registered investment advisors in Canada is the red flag that could have kept people from trusting him with their money.

Checking advisor registration is the first step to take when you start thinking about trusting someone with your investments. Even if you’re already working with an advisor, you owe it to yourself to check his or her registration. It’s easy to do using the new CSA National Registration Search . And what you learn by checking will make you a more involved and informed investor. This is especially true if you combine your registration search with other kinds of background checks, like looking up an advisor’s disciplinary history and searching his or her name on the internet.

Working with a registered advisor is the only way to ensure that the laws governing advisor conduct can protect you, if you need them. The new InvestRight Guide to Investing offers step-by-step directions for conducting background checks, including checking registration. Follow them and you could save yourself from being taken by the likes of Earl Jones.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

On the eve of this city’s biggest undertaking, the anticipation for Canada to win lots of Olympic medals is palpable. Polls on news sites ask people to vote on whether Canada will win 20 or more medals. It’s as if there wasn’t enough pressure on the athletes already, so let’s pile it on.

Some sports enthusiasts are behaving just like aggressive financial promoters, promising you huge returns on our Olympic investment, but forgetting to mention the risks.

Who knows how well Canada will do in the 2010 Olympics.  Just like investing, you can’t promise lots of gold medals without assessing the risks. Even men’s hockey is not a sure thing. 

I will however cheer our team on as they compete against the world’s best and hope, like my investments, that I get a reasonable return.  What that means in Olympic terms is some exciting and unexpected wins over the next couple of weeks.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

Research shows that just under half of Canadians have a financial advisor. If you rent your home, or have more debt than savings you’re less likely to have an investment advisor. By comparison, if you have a family, are female, or older than 65 then you’re more likely to have an advisor.

Being the government agency that registers advisors to buy and sell investment products, the BCSC thinks it’s important for investors to work with registered advisors. But the research also shows that 60% of the Canadians who have an advisor say they rely solely on that person’s advice, and that adds needless risk.

The risks connected with over-reliance on an advisor are fairly simple. You could end up with investments in your portfolio that you don’t understand or have higher fees than other products. You could also end up with investments that aren’t suitable for your risk tolerance or investment goals.

The new InvestRight Guide to Investing can help you get more involved with your investments. We’d like to see you working with your advisor like you would with a business  partner, not putting them on a pedestal as an all-knowing authority.

Have a look at Chapter 4: Making investment decisions and the Worksheet for choosing investments. These will help you define your risk tolerance, research public company investments, and ask the questions that will help you decide if something your advisor suggests is suitable for you.

To read previous posts on this and other topics, click on Let’s Talk about Investing.

In this week’s Macleans magazine , Jason Kirby talks about the myth that Canadians are cautious, prudent and play it safe when it involves their own money.  To make his point, he describes how Canadians are piling on debt by taking on large mortgages at record low interest rates as the housing market heats up again.

But its not just mortgage debt that is the problem.  The Credit Counselling Society of BC helps people resolve their debt woes.  Over the past two years, it has seen more people asking for help carrying more consumer debt than before.  Five years ago, it was common to see consumer debt loads of $40,000 for example. This year the Society is counselling people who are carrying debt loads over $200,000.
 
*Two surveys released this week confirm some troubling trends in BC: consumer confidence is on the rise in BC at the same time that 65% of British Columbians say that they are concerned about their current debt level. 

What’s going on here?  We thought we were smarter than the Americans were.  Not so, it seems.  Which is why we need people to understand a fundamental principle:  If you don’t have enough money to buy something, don’t buy it!

Last year, we partnered with the Financial Consumer Agency of Canada to produce an on-line, interactive program that helps people learn how to handle their finances and avoid financial problems in the future.  It is called The City . It has eleven modules covering everything from doing a lifestyle reality check to preparing a financial plan.

We need people of all ages to go to The City  and learn how to avoid making costly mistakes –like falling deep in debt, choosing poor investments or even getting involved in financial frauds.

*RBC Canadian Consumer Outlook Index is based on an online survey of 1,018 Canadians conducted by Ipsos Reid between December 8 and December 11.  The Conference Board survey was based on 3,000 telephone interviews conducted between January 7 and 24.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

This week, the Canadian Securities Administrators issued their second annual Enforcement Report . If you are interested in finding out more about how we enforce securities regulations across Canada, it is a must read. 

We put together this annual report because we want Canadians to understand the role we play in protecting investors.

We want them to know that we have many ways to protect investors.  For example, the tools we use to disrupt and stop illegal activity. Take freeze orders. We use this power to disrupt a fraudulent activity by freezing the assets. Over the past four years, we have helped to return over $20 million previously frozen assets to investors and victims of fraud.

Cease trade orders.  We can use these orders to protect investors by stopping a potentially illegal activity while an investigation is underway.

We issue halt trades to address suspicious market conditions by stopping trading.  We issue reciprocal orders to protect BC investors from doing business with people who have carried out misconduct in other parts of Canada.

These are just some of the tools we use to disrupt and stop fraudulent activity. 

My main message is that we can’t use these tools if we don’t know there’s a problem.  Reporting to us, either through our inquiry line or on-line, is often the only way we find out.  Sometimes it is easier for friends and family to report than the person directly involved in a suspicious investment.

In any event, we urge you to spread the word to talk to us even it you aren’t sure that something illegal is going on. It is better to be safe than sorry, to use that old cliché.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

Last year, we published a Guide to Investing.  Its purpose was to help people deal with many of the issues facing them as investors:  how to choose an investor; how to work with your advisor; and how to manage your investments going forward. Over 8,000 investors downloaded the Guide. 

This past week, we launched an updated and expanded Guide that includes an important new chapter on Investing in Private Companies.  Please take a look. Two of the most important points in Chapter 5 are:

• Investing in private companies is a risky proposition.  You potentially can lose all of the money you invest.
• Most have resale restrictions – meaning you may never be able to sell your shares and get your money back.

Even though people have to sign a Risk Acknowledgement Form , we find that people still don’t understand that they may be getting into an investment where the risks are very high and that they may lose all of their investment.

So why do we allow people to invest in these circumstances?  Well, this is what we call the “exempt” market.  It is an important source of venture capital financing in our province.  But it’s not for everyone. Only certain types of investors are eligible to invest in private companies. 

Before you invest in this market, please take the time to read how it works. There are many questions that you should ask. The Guide has a worksheet for investing in private companies . Use it. It will help you make an informed decision.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

Rare is the investment advice that meets me where I am: an adult with financial responsibilities but only the sketchiest of financial education. So, while I can’t say I leapt at the chance to update and expand the InvestRight Guide to Investing last year, I did approach it with a sober “this will be good for me” attitude. Now that it’s finished and ready for public consumption, it turns out that it was good for me. I learned the very things I most needed to know—how to think about making investment decisions and what questions to ask at every stage. And I’m dying to know how it works for you, too.

Here are 10 reasons why the new InvestRight Guide to Investing might just become your favourite investment resource for 2010:

1. Questions, questions, questions: The advice you get depends a lot on the questions you ask. Every chapter of the guide outlines the types of questions you should ask and every interactive worksheet expands on those questions to help you gather answers detailed enough to make informed investment decisions.

2. Encouragement: Only 25% of Canadians have a financial plan, even though more than 60% say it is important to have one. Use Chapter 1: Getting Started to remind yourself why you even want a plan, then make short work of calculating your net worth with the interactive Investment Planning worksheet.

3. How to talk to your advisor: It’s never a good idea to put an advisor on a pedestal as the all-knowing authority. Chapter 2: Choosing an Investment Advisor—the Interview shows you what you should know before you hire an advisor and what you should find out about the advisor you already have.

4. Advisor or planner: Know what you need. Investment advisors in Canada are registered by a securities regulator to provide certain services. Not so financial planners. Both serve an important role. Your job is to be sure you’re dealing with someone who is qualified to help you achieve your investment goals and you can read about it in Chapter 1: Getting Started.

5. Help with your homework: Chapter 2: Choosing an investment advisor walks you step-by-step through a simple due diligence process to find out if your advisor is registered to provide the services he or she offers or has ever been disciplined for bad practices. Chapter 4: Making investment decisions points out some basic resources for researching companies you’re thinking of investing in. 

6. Don’t be duped: Wise investors always take the time to ask, "is this investment too good to be true?". Let the guide remind you that despite the vast majority of honest investment professionals there are also unscrupulous types whose goal is to enrich themselves ... and follow the protect your money link in Chapter 3 to find out more. 

7. Walk before you run: Anyone can learn to protect their financial interests by learning the basics: know your worth; set goals; ask questions; evaluate the answers; be sceptical; do a little research. And remember, it’s your money! The guide helps you do it all, and the Wise Investing Tip Sheet sums it all up.

8. Keep track: Go straight to Chapter 6: Worksheets to see how the guide’s five interactive worksheets make it easy for you to start a written financial plan, record your due diligence findings, and conduct intelligent conversations with your advisor or advisor to be. Chapter 3: Working with your investment advisor sets the groundwork for monitoring your investments so you can stay on track with your investment goals.

9. Invest in private companies: Well, maybe. But only after you’ve read Chapter 5: Investing in Private Companies and completed the worksheet that goes with it. Both will help you understand the risks and how to manage those risks if you decide to invest.

10. It’s free! Download it now if you haven't already.

If ever there was a statement that must rankle the clients of Earl Jones, that one takes the cake.  Responding to questions from the bankruptcy trustees, he says:  “Its just me, …my personality likes to help people…I knew most of my clients better than their kids knew them, and did more for them than their kids and their families.”

What kind of person can describe actions that destroyed people’s futures in that way when he goes on to admit that he used clients’ money for his benefit for over 25 years?

On January 15, in a Montreal courthouse, Jones pled guilty  to several charges of defrauding Quebec pensioners of their life-savings in a complex Ponzi scheme. Even though it looks like he might receive an 11-year sentence, it is cold comfort to all of those people who trusted him with their money, estimated at $75 million.

One of the saddest parts of his testimony is the statement that he never used “cold calling.”  In other words, he was able to get clients referring his services to their friends…and on and on it went.  Imagine how you would feel if you recommended using Earl Jones to a very close friend, only to find out years later that he was using the money to fund a very luxurious lifestyle.  Terrible.  That is one of the worst consequences of affinity fraud.

So the lessons learned here are clear.  Don’t just take a friend’s recommendation at face value.  Do your homework. See if the person is registered  with the regulator. Earl Jones was not.  Question guaranteed returns (8% in this case) from a special bank account. Not true.  Not that any of this help Jones’ clients today, but it might prevent others from being caught in an illegal Ponzi scheme.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

We received a comment on a blog that I wrote last August that we cannot publish entirely because it violates our comment policy. But the commenter made some valid points that we think should be addressed.

In the blog I talked about how fast a Google post brought Earl Jones to the public and Quebec enforcement agencies’ attention. I also lamented that even though the word spread fast once the whistleblower put the information on the internet, it was too bad that it took so long for people to become suspicious.

This comes from the whistleblower: “Although Earl Jones himself was not registered, legitimate banks like RBC and later BMO allowed Earl Jones to perpetuate his Ponzi scheme unchecked for nearly 30 years.  Registered financial advisors transferred money to Earl Jones, often without proper authorization, because he was well known in their milieu…”

I agree that we need to train banking personnel to help detect suspicious activities when dealing with clients’ money.  We need more eyes and ears in the financial system overall aware so that such frauds can be prevented.  Two years ago, we developed an online fraud awareness program for front line staff working in BC credit unions.  We also met with the Canadian Bankers’ Association urging the banks to train their staff in a similar fashion. I applaud the whistleblower for making this point.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

In a recent column in the Montreal Gazette , Pierre Montreuil, a recent financial fraud victim, calls for a single agency, with serious legislative teeth, to deal with what he calls a “pandemic,” citing the Norbourg and Earl Jones cases that involved many people.

While these particular frauds happened in Quebec, they are the type of fraud that can happen anywhere.

Unfortunately, but not untypically, Mr. Montreuil ended up trying to get some attention to the problem from a variety of sources – two law enforcement agencies and one regulator. He found it frustrating, to say the least, but finally did get some restitution from the regulator. 

For the average person, our system of enforcing securities’ law is complicated.  Depending on the nature of the contravention and the jurisdiction of the regulator, the case can be dealt with by the regulator or by law enforcement agencies (RCMP, provincial or municipal police) if there is evidence of criminal activity.

We need to do more to help victims in these types of cases.  In BC, we are working with the police and other agencies within the securities industry to try to coordinate a victim’s response to their problem, particularly in cases that involve alot of people. Recently we had a case involving members of the South Korean community. We quickly put together a page on our website, provided translation services for victims to call in with their information, and coordinated that information with the other agencies involved.

Mr. Montreuil rightly argues that more “proactive prevention” is required, rather than “the after-the-fact investigations” that are the norm.  I couldn’t agree more.  But being proactive is not easy.  What would really help is for friends and families of the victims to report anything suspicious to the police and to the regulators.  You can report (anonymously if you wish) -- on-line or through our enquiry line 1-800-373-6393.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

In an article in globeinvestor.com , Dan Richards (Strategic Imperatives) makes the point that after last year’s market debacle, more people are doing their homework on how and where they should be investing their money.  The net result is that they are asking tougher questions, requiring financial advisors to spend more time and effort responding with evidence and support for their advice.

That is good news.  For too long, investors have been unprepared or not confident enough to play devil’s advocate with their advisor.  While it’s true that most of us have become much more comfortable questioning our doctors, it’s not true that we have been able to  question our financial advisors until very recently.

I would also suggest, as I have in a previous blog entitled What information must financial advisors give their clients, that financial advisors have to provide information to investors that is simple, easy to understand – and not just what is required by law. 

For example, everyone has to receive account statements every three months, unless the client asks for it on a monthly basis.  It contains a lot of information – transactions, sales, purchases, transfers, the name and number of securities, the price and total value of the transaction. But, as Dan Richard rightly points out, people don’t want to read a lot of detailed information.  Our attention span is short and most information that we receive, we don’t read because it doesn’t provide any value to us. 

So one of the vows you might consider making for 2010 is to request an annual or semi-annual chart that describes the value of your portfolio at the beginning and end of the year; the amount deposited into the portfolio and the amount withdrawn, including fees. This will give you a clear idea of what’s happened to your financial portfolio over a six to twelve month period.

If you are really on a roll, you also might want to ask you financial advisor to learn how to speak plainly and in a way that is easily understood, avoiding jargon and industry terms that you are not familiar with.  Then, you can enter into a dialogue with your advisor that brings value to both parties.
 
Click on Let’s Talk about Investing to read other blogs on this topic and others.

Ben C. commented on the InvestRight.org visitor survey  saying he was looking for  information on mining stocks, in particular about reading technical reports and summaries of mineral reserves and resources.

Early stage mining exploration companies—like many other early stage companies in other sectors—are risky investments. It can take five to 10 years and cost many millions to find out if a promising claim has mineral reserves. It can take many more years and tens, or hundreds, of millions to obtain permits and build a mine before the company starts generating positive cash flow. While the potential for substantial gain from mining investments exists, it comes with the high risk of failure. When mineral projects fail or are abandoned, investors may be left with securities that have little or no value.

It’s important to face the risk-reward factor squarely if you’re interested in mining stocks. And Ben is wise to seek help understanding the technical reports that Canadian regulators require from mining companies at key milestones. These reports are filed on SEDAR  for public viewing at no cost, but there’s no denying they can be dense, highly complex, and may not be written with the average investor in mind.

At InvestRight, we caution investors to put money only into investments they can understand. If you're prepared to spend some time learning about mining with an eye to investment, dig into the following resources:

• The InvestRight primer for investing in mining sets out 10 questions to ask about a mining or mineral exploration company before you invest. 
  
• The Association for Mineral Exploration in British Columbia  (AME/BC) offers many resources including useful links , publications , and courses . A publication called Mineral Explanation Explained, “a general outline and user friendly translation of the technical materials found in news releases and analysts reports” is listed as “coming soon.” Life Cycle of a Mine , a one-page flyer from AME/BC, puts the long time-frame for mining investments into perspective.
  
• The Northern Miner , a mining trade news source, sells the book Mining Explained , which is listed as a “popular layman’s guide to mining.”
  
• Exploration & Mining 101 , is a two-day course overview of mineral exploration and mining for non-technical types, scheduled as part of  the 2010 Mineral Exploration Roundup  to be held in Vancouver, BC January 18- 21, 2010.
  
• BC Institute of Technology part-time studies in mining technology  offers courses in the spring and fall. Contact faculty and advisors  for further information.

Have you found a book, website, or course about the technical aspects of mining that would be useful to investors? Please share it with us and other readers by leaving a comment.

As Patricia emphasized in her most recent blog – “2009 - The Year of the Ponzi” – this has been a tough year for investors.  The recession has hurt investors and virtually every Canadian to some degree. Signs indicate that we are crawling out of the economic malaise, and the recent Globe and Mail article headlined “Return of the highly confident investor ”  suggests more positive times ahead for investors. But it’s not surprising, that this time around, battered investors are taking a more cautious approach to where and how they invest their money. They are also less optimistic about what they should expect in return.

The Globe piece talks about the need for a long-term perspective in investing and the importance of a well-balanced portfolio, the recognition of the role that risk plays in investing and the need for realistic expectations.

Similar points of view are reflected in the advice given by a panel of international and national experts during the BC Securities Commission’s annual industry forum in October. Have a look and listen to what else the panel has to say in the segment, “Advice for risk-adverse investors ,”  just uploaded on YouTube.

The entire Capital Ideas conference  has been posted as well.

2009 might well be dubbed the year of the Ponzi scheme. In March 2009, Bernie Madoff pleaded guilty to 11 felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors billions of dollars. On June 29, 2009, he was sentenced to 150 years in prison.

Late last spring, another alleged Ponzi scheme reared its ugly head in Montreal, namely the Earl Jones scandal . Jones was arrested on July 27, 2009 and was charged with four counts of fraud and four counts of theft.  He was released on bail for $30,000. The case is in its preliminary stage with over 160 people claiming they have lost money.  Police are investigating each claim, which may result in new charges.

These are two of the most famous cases, but there are more: Manna  ($16 million) here in BC, Milowe Brost and Gary Allen Sorenson , ($100 million) in Alberta, for example.  You might want to look at the series we did highlighting the lessons learned from the Manna debacle on the InvestRight blog to understand how these types of frauds are marketed to the public.

Some of these frauds had been going on for a long time.  Here are a few reasons why they fell apart.  In general, investors start to try to withdraw their money at the same time that the perpetrators find it more and more difficult to bring in new investors, causing the scheme to collapse. This happens when people begin to get nervous or suspicious that the investment scheme is questionable. They try to get their money out before it falls apart. 

In other cases, people, short of cash for a variety of reasons including last year’s credit crunch, all of a sudden need money to look after their everyday living expenses. Too many people trying to withdraw money at the same time can cause huge problems for a Ponzi scheme.  Other reasons could be that the perpetrator(s) think they are about to be caught, so they take the money and run as fast and far away as possible.

Here’s the point.  Many investors invest their money in Ponzi schemes because of the generous returns promised.  Often investors are convinced to join by friends, family and acquaintances, based on their initial experience with the investment.

Always question high returns promised with little or no risk and don’t take anyone’s word without doing your own homework.  Check out our new program Protect Your Money  before investing in a new investment.  Check out your advisor to see if he or she is registered .  You might save yourself the heartache of losing money in a Ponzi scheme.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

Despite all of the attention paid to the dangers of fraudulent investment schemes, promoters are still out there using tried and true methods.

Last week, I was sitting at home, quietly reading a book.  The phone rang and a loud, very commanding voice said, “Hi I am (and he gave me his name)”.  He then began an aggressive speech (which was clearly taped) that talked about the oil and gas sector and how successful it had been over the past year. He announced that he had a very good opportunity that would give an investor 70% return annually!  He then said that all you needed was to “be liquid for $12,000” (investor jargon) and the returns would begin after 90 days.  The voice then told me to “Press 1 if I was an investor.”

I believe that I received a similar call several months ago. I think this is an ongoing scheme.

I tried to imagine how others might react to such a call, particularly if they were vulnerable in some way.  70% returns would have a special appeal to people with financial needs.  Would they even stop and consider how ridiculous the offer was?

Clearly, the calls are random calls and the individuals behind it must be finding enough people to cough up the money to make it worth their while.

We put together a new program called Protect Your Money  to help people do their research before making a commitment to a particular investment.

If you get a call like I did, use this program to find out what steps you can take to protect yourself.  I also found another US website  that highlights all of the different techniques used to lure you into a fraudulent scheme. Take a look at it as well.  Share this information with your friends and family, especially if you know that they might be vulnerable to a pitch like this.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

Lately the Vancouver Sun has been publishing a series of articles about a company, which privately raised more than $220 million from 3,375 investors over a 33-year period to finance the development of the Gallowai Bull River property in southeastern BC.  Most of these individuals were able to invest under the “accredited investor” exemption.

The exempt market generally applies to the sales of securities to investors without a prospectus and the advice of a registered dealer.  Recently, investors in this project filed a petition in B.C. Supreme Court alleging that the president of the company, Ross Stanfield, has operated the project in a manner oppressive to minority shareholders.

It is obviously a long and difficult story, which I won’t go into today.  Read the articles by David Baines in the Vancouver where you will get more information.

Many of those investing in Gallowai Bull River did so under very different rules for the exempt market than are in place today.

Today the rules are highly harmonized among Canadian provinces.  In general, “accredited investors” must have an annual income of $200,000 for two years.  Their financial assets must be more than $1million (not including real estate) or $5 million overall.

Today, when investors buy through an offering memorandum, there is a very clear statement in the form of a “warning” given to investors in private companies. It prominently advises that these types of investments are risky and high returns are illiquid.

Investments offered by private companies are not required to give the same ongoing disclosure (financial statements, press releases or material change reports) as public companies do.  In this case, you are largely on your own, without the investor protections that are required with a public company.

The securities are usually not listed on any stock exchange, which means your ability to resell them to liquidate your investment are extremely limited, if not impossible.

Here is the most important piece of advice to give to people considering an investment in a private company: Read the offering memorandum’s risk disclosure.  Then consult a person who is not participating in the deal, e.g. lawyer, banker accountant, financial adviser or someone with business acumen, before making any decision to participate in the investment.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

I was asked the other day what general disclosure advisors have to give to their clients regarding their accounts on an ongoing basis.  Fiona Anderson  of the Vancouver Sun wrote an article on the subject that is worth reading.

The answer is this.  Advisors are obligated to send account statements every three months, unless the client asks for it on a monthly basis.  It should contain basic information about dates of transactions, whether they are sales, purchases or transfers, the name and number of securities, the price and total value of the transaction. 

For many people, this information is often difficult to interpret and doesn’t provide a clear picture of just how your account is performing overall.  So you have every right to ask for information in a manner that paints a clear, simple picture of how your investments are doing. 

For example, you can ask your advisor to prepare a year-end chart that gives the following information:

• The value of my portfolio at the beginning and end of the year
• How much was deposited into my portfolio
• How much was withdrawn from my portfolio (including fees).

Then you should ask for a year-over-year comparison so that you can see how your account is doing over a longer period-of-time.  This is important information.

As well, look at our Guide to Investing worksheets that outline a whole range of questions to ask about your investments that will give you more useful information than what the monthly or quarterly statements provide.

Click on Let’s Talk about Investing to read other blogs on this topic and others.

A recent study by Ipsos-Reid this summer (CSA 2009 Investor Index ) showed us that fraudsters are moving away from using the internet or cold calls as the way to approach people.  Instead, they are going back to the old-fashioned personal approach. This is what we call “affinity” fraud. There is no doubt that this type of financial fraud is probably one of the worst because it destroys trust and relationships between family, friends, neighbours and whole communities.

Recent examples that have received media attention highlight just how pervasive this type of fraud is – Bernie Madoff, Earl Jones, Sung Wan Kim.  So while the study shows us that the numbers of people being approached hasn’t changed, the way they are being approach has.  (We saw in 2006, much higher numbers citing random, anonymous email and telemarketing.)

Another worrying trend is that the number of people repeatedly victimized has increased since the 2007 study. We don’t really understand why, but we are looking for reasons.

Finally, we see from a whole range of US and Canadian research that suggests there is no single characteristic that describes victims of fraud.  However, we do know that they are more likely to be experienced investors, confident and educated – those aged 55 or older and/or with post-graduate degrees.

The lesson here is that no one is immune to fraud. Clearly, fraudsters do target through groups (churches, book clubs, investment clubs) and pursue professionals who earn good money. Everyone needs to know what Red Flags to watch out for.

We recently put together a new program called Protect your money  to help people avoid being defrauded.  Please go and take a look – it helps you recognize it, report it and protect yourself.

If you want to read other blogs about this subject and others, please go to our InvestRight blog .

On October 13, 2009, the BCSC issued an Investor Alert telling the public that it was investigating Sung Wan (Sean) Kim who was president of Cirplus Futures Inc, an exchange contracts dealer, and a prominent member of the local Korean community.

In the Alert, BCSC urged investors to contact the BCSC inquiry line to provide information about Mr. Kim or dealings with him.  It also advertised its inquiry line and translation services to “Kim” investors in the Korean media.

Over the past couple of weeks, there has been extensive Korean media coverage reporting millions of dollars of losses.

Mr. Kim was arrested in Korea by police on or about October 18, 2009 and is detained pending a pre-trial hearing. BCSC issued a temporary order and notice of hearing that will be held on November 3, 2009 at 10:00 am.

The RCMP Vancouver Integrated Market Enforcement Team (IMET) has initiated a criminal investigation in relation to the alleged multi-million dollar fraud scheme involving Cirplus Futures Inc.

Today we published a webpage on our InvestRight website to keep investors, the public, and  media up-to-date on developments that can be made public in the “Kim” case.

Every year, the BC Securities Commission hosts a half-day event to discuss and debate important issues facing Canadian regulators.  In the past, we have had international and Canadian experts examine such topics as outcomes-focused securities regulation in action, regulatory and criminal securities’ enforcement, and the challenges facing Canadian investors in the 21st Century.

This year Capital Ideas  is very timely. Business leaders and regulators will discuss how regulators should respond to the international credit market crisis and its fallout on the broader capital markets.  The panellists have impressive backgrounds and a wealth of experience:

• Doug Hyndman, Chair and CEO of the Canadian Securities Transition Office, Vancouver, BC
• Dr. Malcolm K. Knight, Vice Chairman, Deutsche Bank, New York
• Greg Tanzer, Secretary General, International Organization of Securities Commission (IOSCO) Madrid, Spain
• And Dr. Patricia Walters, CFA, Clinical Associate Professor of Accounting, Fordham University President, Disclosure Analytics Inc. New York.

Ian Hanomansing, host of CBC’s News in Vancouver and sometime host of The National will moderate the panellists. Discussions will range from how to manage systemic risk, globally and locally, to identifying the needs of retail investors going forward.

If you are interested in listening to this dialogue, the BCSC website will post the webcast on its website  after December 1st, 2009.

On October 13, 2009, BCSC issued an investor alert  announcing that the BCSC is investigating Sun Wan “Sean” Kim, the principle of Cirplus Futures Inc., a Vancouver-based exchange-contracts dealer.

Anyone who has had recent financial dealings with Kim or is a client of Cirplus to contact the BCSC.  A Korean translator will be available through our inquiries line at 604 899-6854 or 1-800-373-6393.

RCMP received a complaint about Mr. Kim on Friday October 9, which was passed onto the BCSC.  The BCSC’s enforcement group is currently working closely with the RCMP on this case. 

Some background.  Cirplus Futures is a five year old foreign exchange “futures” trading firm based in downtown Vancouver.  As of Friday, October 9, Cirplus is being wound down under BCSC supervision.  Mr. Sun Wan “Sean” Kim has been a principle of the firm since November 2002.  We don’t know where he is at this time. 

BCSC is very concerned that both Cirplus clients and others have invested their money with Mr. Kim.

It’s October but the chill people are feeling isn’t just from the temperature dropping outdoors as investors can’t help but shiver as they take stock of the financial mess from the past year. Add to this the stories of investment fraud victimizing people and it is no wonder that investors are feeling a bit left out in the cold. Where can people turn for help?

On the fraud avoidance front, we can help. As part of Investor Education month, we have launched an online, interactive tool entitled, Investment Scams: How to Protect Your Money. It focuses on some common methods that fraudsters use to approach potential victims – via friend and family or ‘affinity’, the Internet, seminars and advertisements.

Developed jointly by the BC Securities Commission and Alberta Securities Commission this online resource engages users with an opening quiz and testimonials to raise awareness of the ways fraudsters attract their victims. The testimonials are based on real cases depicting how people are drawn into scams.

The comprehensive tool provides information about how to recognize, research and prevent fraud. Offered as modules that can be easily accessed and shared, the resource provides investors with checklists and tips to help them evaluate and research investment opportunities for risks and potential fraud.  As well, there are features within the resource to help investors directly email questions to a person offering them an investment and submit a complaint to the securities regulators.

There’s even a YouTube video to support this tool.

We hope people will use to this new resource in the fight against financial fraud.

Back in 2006, the Canadian Securities Administrators (CSA) commissioned a major piece of research  that looked at Canadian investors’ skills and knowledge and the levels of investment fraud in Canada.  It was an illuminating study. We learned a great deal about our investing beliefs and our behaviour. For example, investors understood the importance of being informed investors, yet they fell short when it came to putting their knowledge into practice.  The result was a more vulnerable investor to unsuitable or illegitimate investment opportunities.

This summer we conducted another investor index, surveying more than 6,000 Canadians . We found to our dismay that the number of Canadians with no savings at all had increased by 8% (from 28% to 35%).  On the good news front, the numbers of Canadians falling victim to investment fraud hadn’t changed. 

But here is where BC investors have to be alert. BC is way ahead of the pack (10% higher than the national average) when it comes being approached with an investment scam.  Of further concern is the fact that British Columbians are the most likely to say they have an aggressive investment style, with 38% agreeing with this statement. This last point is consistent with our Eron Mortgage Study  where we learned that of those scammed, many were overconfident men in their 50’s.  In the Eron Mortgage debacle, over 3,000 investors lost more than $180 million.

These are just a few of the findings in what is a very important piece of research. There is a lot to learn about Canadian investors.

Last week, BC and Manitoba issued an alert  warning investors about a possible ‘recovery room’ scheme. Typically, these schemes involve companies that contact investors who may have lost money in a fraudulent or illiquid investment with an offer to buy their shares at an inflated price.

Once the investor agrees to sell their shares, a contract is drawn up, and they are asked to pay a fee to cover business costs. They are often told to wire a sum of money to an offshore bank account. The scammers take the money from this offshore account but do not repurchase the shares and the victim for a second time loses money.

The reason why we issue these investor alerts is to help investors avoid being scammed, in this case, twice.

Often investors do some homework to make sure that the company that they are considering investing in or doing business with is okay. A simple way is to Google the company by name.

By issuing these alerts, we hope that the information we have published about York-Rio Resources Inc. and Penn Capital Management Ltd. come up in online searches so that people avoid being targets of a ‘re-victimization’ scheme.

 A colleague received an email a few days ago flogging the wonders of FOREX – trading in the foreign currency exchange market. Here’s part of the email:

“You know, you can make Forex traders work for you giving you around 1% per day. Professional company offers managed Forex trading accounts. It means: average returns of 1% per trading day; almost no time and no trading skills required; protection against trading losses; real-time Forex trading sessions; full control of your profits and many other features to take the most of managed Forex trading accounts…”

My colleague forwarded the email to me with her realization that the one per cent a day return boasted about equates to roughly 30 per cent a month. As she puts it, “Talk about too good to be true!”

Now, I am not saying that this is never possible but is it likely that such returns are commonplace? I highly doubt it.

Before you get involved in the FOREX market, you should know the risks . We explain how complex and volatile this type of trading is and also warn people about FOREX scams.

Foreign currency trading is a favourite ruse of fraudsters to make claims and promises about exorbitant investment returns. Just recently, an Oregon woman  was sentenced to five years in jail for bilking $2-million US from 20 investors by promising them that she would generate profits for them in the FOREX market. It turned out she was running a Ponzi scheme for the most part. Closer to home, the Manna Ponzi scheme  also enticed investors with the promise of using FOREX as a method to generate “double-digit monthly returns.”

A few final notes about the email my colleague received: First, it was unsolicited. Second, there’s a mistake in the message.

“…many other features to take the most of managed Forex trading accounts…” Shouldn’t that be make?

Both are signs that it may be part of a spam campaign. Be careful.

Today, the media are abuzz about Milowe Brost  and the estimated $400 million losses from thousands of investors in Canada and the United States.  The RCMP arrested Mr. Brost this week. They are now looking for his partner, Gary Sorenson , also from Alberta, who is believed to be somewhere in Honduras, presumably hiding from Canadian authorities. Both men were charged with fraud over $5,000 and theft over $5,000, following a three and a half-year investigation.

Unfortunately, all of the characteristics of a Ponzi scheme are in this one. Here are the five characteristics of a Ponzi scheme:

1. Charming, manipulative leaders/promoters skilled at extracting money from investors.  Investors noted that Mr. Brost was “very smart and could rattle off information on a wide variety of financial subjects.” He was successful in keeping his investors away from the regulators and the police by continuing to promise his investors that this was a legitimate project.
2. High Returns. In the case of Alberta, the offer was for 35 – 40% returns – way higher than what markets and banks can provide.
3. Pyramid/Affinity characteristics. In order for a Ponzi scheme to be successful, it must continue to bring in new investors.  Sometimes there are financial incentives to encourage investors to bring in people and often that means friends and family. The result can be devastating because friends and family also lose their money, and can ultimately blame the person who recommended it to them.
4. Promises of tax-free or tax advantages. Clearly this is attractive to many people because it implies you can avoid paying taxes.  As we all know, you can defer paying taxes, but you cannot avoid paying taxes altogether!
5. Confidentiality. As was the case of the Manna Ponzi scheme , described in  a previous blog posting, investors are encouraged, sometimes even made, to sign non-disclosure agreements. 

Share this blog with your friends.  If anyone knows of a suspicious investment scheme, the first thing to do is report it.  Sadly, we find out about these schemes when it is too late and all of the money is gone.  Reporting early can result in disruption or stopping the scheme altogether.

When I read the story about Anwar Badshah in the Surrey North Delta Leader , some obvious red flags leap out at me.  Last June, he pleaded guilty to three counts of fraud over $5,000 and was sentenced to 18 months of house arrest by a provincial court judge in Port Coquitlam. BCSC investigators described the Badshah promotion as a "Ponzi" scheme.

This was a serious crime. Documents  on our website show that at least 150 people had invested more than $2.2 million with Badshah Communications Group Ltd. by the time the investigation was initiated.  The effect on these investors’ lives was devastating as voiced in the impact statements provided to the court.

One of the most obvious red flags in this particular investment scheme was the promise of very high returns -- 100 per cent return within months of investing the money.

Another important red flag was the fact that the company was not registered with BCSC, a legal requirement for selling promissory notes to investors. 

Finally, there was another hint that there might be something suspicious about this scheme. Mr. Badshah targeted members of the Fijian Muslim community, the community in which he was born and raised. This technique is called "affinity" fraud. It exploits the trust and friendships that exist in groups of people who have something in common.  Many affinity scams involve Ponzi schemes, making this a classic case of investment fraud. 

If you hear about or have been approached with a investment scheme that just doesn’t sound right, don’t hesitate to call our inquiry group  to get a second opinion.

There is no such thing folks! We at the BCSC get very frustrated when we see so many cases where people fall for this promise.

Recently we settled with two individuals  who admitted to contravening various securities laws when they solicited funds for a failed investment scheme that raised about $9.6 million from 863 investors. Get this. These investors were told that their funds would be used to buy and sell distressed merchandise, and that they could expect between 100 per cent (their initial investment) and 300 per cent return within 90 days.

That is a huge red flag. 100 per cent return – not possible in a legitimate investment. How do we get the message through to people that these types of promises could lead to losing all of their investment?

With all of the media attention to the Madoff case (promised up to 46% annually ) in the US, surely people will become more cautious, checking to see if their advisor is registered and getting a second opinion of promised returns that are suspiciously high. Earl Jones  allegedly promised higher returns than the bank.

Have you seen any examples of promises too good to be true? If so please report them to the BCSC’s inquiries group.

Every fall we hold a half-day conference, Capital Ideas, for the securities industry and interested members of the public. CBC news anchor Ian Hanomansing moderates the panel and handles questions from the audience. Last year we tried to get into the minds of the 21st century investor .  We spent the morning with business leaders and investors analysing original research on the challenges facing investors today.

The year before we brought together a group of business leaders and enforcement professionals to discuss securities enforcement  – one of the key tools that regulators have to protect Canadian investors.

This year we are bringing to Vancouver a distinguished panel of experts , including the head of the International Organization of Securities Commissions (IOSCO) and Doug Hyndman, who leads the transition office for Canada’s proposed national securities regulator. Capital Ideas 2009 will focus on how regulators should respond to the international credit market crisis and its fallout on the broader capital markets.

We picked this year’s topic because we think it is important for everyone in the industry to understand what happened during last year’s credit crunch in order to prevent it from happening again. The panel will bring a wealth of knowledge and experience to a range of topics -- from how better to manage systemic risk globally and locally, to the challenges of advising today’s conservative, risk-adverse investors.

If you are interested in registering for the conference go to our website .  There are a limited number of seats available at a reduced rate of $50.00 for students.  Call Dawn Barden at 604 899-6677 to purchase seats at this reduced rate.

What next.  Here is a horrible example of just how clever a con artist can be.  Defrauding women through an internet dating service . This isn’t the first time we have heard of such tactics.

Just imagine.  You are single and looking for a suitable mate. The woman used an online dating site, plentyoffish.com .  The next thing you know, you have been convinced by a potential partner to part with some or all of your savings. In this case, the person portrayed himself as a labour lawyer who had connections in the Canada Revenue Agency that could help resolve a tax issue involving the woman’s business. It could just as easily been someone claiming to be an advisor offering an investment opportunity – usually one claiming to have high returns with little or no risk.

What’s the lesson here?  Well, it means that career con people will find any avenue to prey on individuals and steal money from them.  Just when you least expect it.

What should you do?  Before writing the cheque on a potential investment opportunity, see if he or she is a registered investment advisor. Check to see if he/she is on the disciplined persons list. Google their name to see if there is any prior history that makes you suspicious. Get a second opinion.

If you are remotely suspicious, call us at the BCSC and report it.

It’s back to school, as thousands of students begin another year of studies.  Here in BC, our high school students are one step ahead of the rest of Canada.  Why?  Because five years ago, the BC Ministry of Education introduced a course teaching financial life skills for its new Planning 10 program.

To support the program, we took the initiative to design a comprehensive teacher resource called The City: Financial Life Skills for Planning 10 .  Working with teachers, students, curriculum writers and financial experts across the province, we quickly discovered that one of the biggest challenges was how to make financial education interesting and relevant to 14 and 15 year olds.

The result is an interactive, activity-based resource using eight fictional lifestage characters whose stories represented a wide range of financial experiences.  As part of our program, we provide free webinar training to teachers, usually twice a year.  This is an important component because we know that many teachers find the subject matter quite daunting to teach.

Last year, the Canadian government identified financial literacy for Canadian youth as a priority. To support this important goal, we agreed to license The City  to the Financial Consumer Agency of Canada so that an on-line, interactive program in English and French could be made available to all Canadians.

So if your children are starting Grade 10, tell them about this program.  Explain to them how important it is to learn how to manage money. Tell them it is an important life skill, as important as learning Math, English or History. 

Understanding important financial concepts like budgeting and saving, credit and debt, insurance, taxes and investing will arm students with the basic tools they need to navigate through the financial realities of adulthood.

It is always important to examine fraud schemes to find out just how they successfully entice so many investors into a loosing proposition.  Here’s another significant aspect of the Manna ponzi scheme  that is worth knowing about.

We always tell people in our InvestRight seminars that any promise of high returns with low or no risk is a false promise.  There is no such thing. 

Lesson #3 In this case , Manna convinced investors to loan it money by promising significant monthly returns.   Manna told them that their funds would be placed with experienced traders who had a long history of producing double-digit monthly returns through foreign currency trading.  Manna said it had an "annualized trading history of profit returns not less than 20% per month (240% a year)."  Because of these high returns, Manna would pay consistently high returns back to its investors, as high as 125.5% per year.

The promise was 7% monthly returns, later reduced to 5%!

At the Manna hearing, the BC Securities Commission asked Dr. Peter Klein, an expert in international banking and trading, to give an opinion about the promised returns. His testimony reviewed the principles of financial theory and empirical studies. Dr. Klein concluded that it was simply impossible to generate returns of 5%, month after month, through any legal trading or investing in any financial markets.

So here’s the thing.  All ponzi schemes offer high returns.  That’s how they extract money from investors. Obviously, people who fall for these schemes don’t do their homework to see if the size of returns being offered is actually possible.  And here’s another piece of information for you: returns are never consistent month after month.  That was one of the red flags in the Bernie Madoff  case.  The markets fluctuate, up and down. 

So watch out for excessively high returns promised consistently month over month. If that’s the promise, then mark my words, it is a scam.

This is the second in a series about the lessons we learned from the Manna ponzi scheme  which resulted in over $10US million losses from more than 800 investors.

Lesson #2:  A key component of this fraudulent scheme was the use of existing investors to bring in new investors.  They were called “affiliates” or “consultants”, and were paid one-time bonuses of between 10 and 15% of the amount invested by the new investor, as well as a monthly percentage of the amount invested by the new investors and, for a short period of time, on the amount invested by any investor brought in by the new investor. 

This pyramid structure of a ponzi scheme is an essential component to any successful ponzi scheme.  Another consequence of the pyramid structure is that often the person brings in friends and family, unwittingly including them in a fraudulent scheme, which ultimately results in devastating financial losses for them.  At the Manna hearing, one witness testified that he felt he had betrayed the trust of two friends and that he had been robbed by a “collection of thieves.”

Recent research tells us that the first casualty of fraud is the victims’ trust in other people, investments and financial markets. Not surprisingly, Canadians agree that the impact of investment fraud can be just as serious as the impact of crimes like robbery and assault.

The lesson learned here is if you are involved in an investment scheme that gives you a financial incentive to invite more investors to participate, think twice.  It has all the earmarks of a ponzi scheme. You should walk away from it as quickly as possible.  Tell friends and family to do the same.

A BC Securities Commission panel  recently issued its decision regarding a BC based ponzi scheme that resulted in over $10US million losses from more than 800 investors.

The “Manna scheme” was a fraud into which the investors deposited about $16 million, but received as little as $3 million, not more than $5.6 million, back.  There is no apparent hope of recovering the rest.

There are many lessons to be learned from this particular ponzi scheme, which I plan to outline in a series of blogs.  You can go to our site  and read the entire decision, which will give you a lot of information about how the scheme was created and carried out successfully. 

Lesson #1: One of the key tactics employed was confidentiality.  Investors had to sign five-year non-disclosure agreements before they could attend any presentations or meetings or receive any of the promotional material.  Clearly, the intent here was to discourage investors from seeking advice about the investment from anyone – even family friends or members – because it was prohibited by the agreement.

In the hearing, investors testified that these confidentiality agreements were an important part of the package presented to investors.  Manna representatives drew their attention specifically to the obligations in the agreement and emphasized the importance of confidentiality.

The lesson learned here is that while investors might mistake the use of confidentiality for an opportunity to be an insider for a lucrative investment, they need to be fully aware that confidentiality is frequently used by fraud artists to protect their own interests and to prevent the regulators from finding out about the fraud.

In future, if someone presents you with an investment that requires you to sign confidentiality agreement, ask yourself, who is the confidentiality agreement really protecting, you or them?
 
Think twice. Don’t sign it. Consult a financial professional, or a lawyer, instead.

There is a story in the Montreal Gazette  which talks about how fast a Google post brought Earl Jones to the public and Quebec enforcement agencies’ attention.  Six days after Christina Ross made a comment on a Google map site, many of his alleged victims were meeting to discuss what they should do.

We at the BCSC are fascinated by the viral potential of the internet.  It continues to be an important tool for the public to find key information about something that is not right.

According to the media reports, the whistleblower experienced months of cancelled meetings, a forged document and three bounced checks. These are all red flags and should be immediately reported to the authorities.

Clearly, people are doing a lot of their research on the internet about investments and about individuals.  But here’s the real aha of the story.  Individuals don’t always report suspicious activities to the authorities.

Maybe it wouldn’t have changed the outcome, but maybe it would have. Securities regulators can move swiftly, freeze bank accounts, perhaps disrupt a ponzi scheme before all of the money disappears. In this case, the regulator (Authorite des marches financiers) did act swiftly once it was notified on July 9th.

So if you are suspicious about what is happening to your money or investments, please report it to the regulator and to law enforcement agencies.  You just might save yourself, or someone else from the terrible fate that befell Earl Jones’ clients.

It seems like we have a Red Flag that isn’t on our list.  Time and time again, we find out that a financial advisor who has been caught red handed doing a ponzi scheme has been  living a lavish lifestyle .

Remember Ian Thow .  He had a huge house, an airplane, and donated generously to charities on Vancouver Island.  Bernie Madoff  lived high on the hog too… a lovely apartment on Upper East Side in New York worth about $5 million, a 55.5 foot yacht named “Bull”, and a Palm Beach mansion worth about $10 million.

Probably better to ask yourself some questions about how this lavish lifestyle came to be.  Hopefully, it is not with your money. Always pay attention to your instincts, do your homework when choosing an advisor and if he or she shows up at your house driving a Mazerati, then it might be a good reason to move onto to a financial advisor who drives a Honda.

Living the Life of Riley  might be a big hint that he or she is up to no good.

I am getting closer to retirement, and like many, suffered losses in the market crash last fall. Now I need to rebuild that nest egg. But compared to five years ago, my appetite for risk is somewhat diminished. 

Recently I asked a very astute player, who has held senior positions in the financial world in Canada and internationally, what advice he had for someone who is a conservative, risk-adverse investor trying to establish a long-term investment strategy.

He told me what I already knew, but it’s worth mentioning again and again.

Number 1:  Never invest in a product you don’t understand.
This maxim is worth repeating because new investment products are becoming more complex and we often forget to ask basic questions to find out the underlying reasons as to why it is a good investment. If you don’t understand the answers to these types of basic questions, then you should not make the investment.  It is that simple.

Number 2:  Hold a diversified portfolio or the “don’t put all of your eggs in one basket” strategy.
If you diversify your portfolio into cash, bonds and stock over the long term, you reduce your risk.  Why? Because no single type of investment performs best in all economic conditions .

While these two simple pieces of advice seem obvious, it is surprising to us at the BC Securities Commission how often we see investors fail to follow this advice.  In cases like Eron Mortgage  where BC investors lost millions of dollars, we often heard that people had put their entire life savings into this one investment.  They failed on both counts.  They didn’t understand the product they were investing in and they certainly didn’t diversify!

Last week, the BCSC  issued a panel decision finding four BC residents had perpetrated a “deliberate and well-organized” fraud in a Ponzi scheme that resulted in the loss of over US$10 million by more than 800 investors in BC and elsewhere.

Media, CTV  in particular, researched the case and found several victims who were willing to talk about their experience.  They spoke out in order to warn people not to make the same mistakes that they did.  They cautioned people to be wary about falling for the promise of big returns.

It is hard for victims to talk to the public about what happened to them because, in one sense, they want to forget the whole ordeal.  We think it is important to applaud those who are willing to talk about what happened to them. In this case, the Ponzi scheme started as an “investment club.”  Investors were promised 7 percent return, resulting in compounded returns of more than 100 percent. 

The lesson here is that high returns always present high risk and in an illegal ponzi scheme, it usually means that the investors will lose all of their investment.

Check out our Red Flags. If you, your family or friends are approached to invest in one that has any of these characteristics, please call our inquiry line 1-800-373-6393 or fill out a complaint form on InvestRight.org.

Several years ago, we issued an Investor Alert that talked about the fact that income trusts were, in fact, not fixed income investments.  At that time, we were concerned that too many retirees were investing in income trusts because they thought that these products would provide ongoing income.

Recently, we decided to issue information regarding exchange-traded funds (ETFs).  In this case, we were concerned that people didn’t understand that this term is used to describe a whole category of products, some very risky, some not so risky. We pointed out that investors should determine what type of ETF they are considering and if it was a “leveraged” or “inverse” ETF, they should think twice.  Both of these products are better suited to professional investors rather than retail investors.  Professional traders use these short-term trading vehicles to speculate or to hedge other positions they hold.

If you know about products that are being introduced to retail investors that require a better understanding of its risk, please don’t hesitate to respond to this blog or to email us with that information.  We’ll take a look at the product in question, and if we also have concerns, we’ll issue information outlining the risks and outlining key information that will help an investor make an informed decision.

Amid the tales of financial despair stemming from Montreal’s Earl Jones saga, investors everywhere are becoming more aware of what they can do to protect their money when investing.

Checking whether an investment advisor is registered with a securities regulator and what they are allowed to do on your behalf is certainly an important step. The Globe’s Rob Carrick outlines this quite well in a recent piece .

And, as we pointed out in an earlier blog, there’s an initiative afoot that the BCSC is leading to simplify checking registration across Canada.

But, as the Globe piece notes, there’s more that you can do to check on the background of those you are dealing with when it comes to investing. For some time now, we have made available a “Background Research Toolkit” . The toolkit allows you to check not only the registration of an advisor but also whether they have been disciplined in the past. It allows you to check on a company’s history and news reports about it as well as helpful links to other search tools. Really, it provides a useful starting point for any background check.

(For those who are interested, there is a similar toolkit  for investment industry folks or professional researchers that highlight more paid sources.)

And, as always you can always email or call the BCSC Inquiries Group (604-899-6854 or toll-free 1-800-373-6393) to speak to a staff trained to help with your questions.

We’re in the midst of assessing the InvestRight website and are looking for feedback from InvestRight users. Complete our quick survey  to let us know what you think of the site.

We’re also inviting people to participate in InvestRight website strategy sessions that will take place in downtown Vancouver over the first two weeks of August. Just provide your name and email address at the end of the survey and we’ll contact you to set up the session.

What’s in it for you? The chance to give us incredibly valuable feedback on the InvestRight website and help us improve the site to ensure it meets your needs and the needs of other investors. If you participate in one of the InvestRight strategy sessions you’ll also receive an honorarium in appreciation of your time.

If you don’t feel like taking the survey, but want to give us some feedback on InvestRight, you can add your comments to this post.

Interesting piece in the weekend edition of Montreal’s The Gazette about Carlo Ponzi (sometimes referred to as Charles Ponzi) and his connection to the Quebec city.

By now – thanks to Bernie Madoff – how a Ponzi scheme works is well known: It takes money from new investors to pay existing investors. There’s no real investment to generate returns. It’s a fraud that works only as long as new money keeps flowing in, but sooner or later it is doomed to fail or be revealed as redemptions or payouts outstrip new investments.

Well, it appears that Ponzi moved from Boston to Montreal as a young man and it was here that he was introduced to the swindle that would later bear his name. On the heels of Canada Day, it s not a Canadian connection to take pride in.

150 years. That’s the jail time that convicted fraudster Bernard Madoff was sentenced to today in a packed New York courthouse.

In handing out the maximum sentence to Madoff, U.S. District Judge Denny Chin said,

“Objectively speaking, the fraud here was massive,” he said. “Here the message must be sent that Mr. Madoff's crimes were extraordinarily evil and that this kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll.”

We have publicized the “staggering toll” investment fraud exerts on victims as part of the investor education we conduct to help people understand the size and scope of this problem and to prevent them from becoming victims themselves.

The research that we helped conduct in 2007 shows that it is not a “bloodless crime that takes place on paper” but causes very real health and social problems for its victims and their families. The victims that stepped forward to tell their stories of ruin today unfortunately give further proof to those findings.

Don’t fall victim yourself, take the proper steps to help prevent against falling victim to investment fraud. Get educated about the risks and how to properly research investments. You can do this on our InvestRight website and while you are here, take the Madoff test.

This is my final post as an InvestRight blogger. I am packing up and moving to Ottawa, our Nation’s capital. Thank you to our readers, supporters, and critics for making my experience as a blogger for InvestRight such a worthwhile endeavor. I look forward to watching the community grow and evolve. Before I sign off, I want to share just one more thought.

Last week I read an article in the Financial Post: Small investors flock to forex . It raised a concern that investors looking for higher returns may turn to the FOREX market without first being aware of the risks and even worse, the FOREX market may provide a breeding ground for frauds and scams. If you are considering the FOREX market, do your research to understand the risks and spot the scams. As a starting place, you can read our investor watch: Investing in FOREX.

Adieu and best wishes.

- Anthony

The Shorty & Evans radio campaign winds up today on the TEAM 1040, bringing to a close 8 weeks of talking investing and hockey to a very specific target audience—over-confident men, 45+ , who love sports and listen faithfully to sports talk radio.

If you’re an investor in that age and gender group, you may not think of yourself as being over-confident. But research shows it’s not neophytes but experienced investors who fall most often for investment scams, and we thought that one of the best places to find you was on sports talk radio.

People said all kinds of nice things about the Shorty & Evans commercials we ran, mostly of the “hey that’s cool” variety. The 30- and 60-second spots featured excerpts from a longer conversation on investing that John Shorthouse had with Lang Evans this spring, and invited listeners to tune in to the full podcast on the InvestRight blog. The spots did their job of increasing visits (blog visits doubled while the spots ran), but I admit that we were expecting more people to take the next step and watch the podcasts on Shorty & Evans YouTube Playlist .

I’d love to know why listeners didn’t link to YouTube. If you have any ideas, please leave a comment. In the meantime, the podcasts are on the InvestRight YouTube channel   24/7 and you can listen to them any time you want by going there, or clicking on the player below.

If you’re a hockey nut, I think you’ll enjoy the hockey references. If not, you’ll still find useful answers to important questions about risk and reward, the red flags of investment fraud, and wise investment plays. We’ll be back with new podcasts in September. For now, listen away and, please, share this first batch with your family and friends.

 To read the top takeaways from all the Shorty & Evans podcasts, follow the links below:

Risk & Reward
Red Flags
Wise Investing Plays
Investment Fraud 

Do you find the podcasts and takeaways useful? It's easy to leave a comment, and we can do a better job of  posting content you really want and need if we hear from you directly.

If you’ve used our Guide to Investing  on how to work with your investment advisor, you know how important it is to check your advisor’s registration. And if you’ve checked your advisor’s registration, you’ve probably used the registration database on the BCSC website  or contacted our inquiries group.

If you have checked the registration of your advisor or the advisor’s firm… how did that go? Did you find what you were looking for? We’re looking for feedback on the current process of finding registration information in BC and across the country and would love to hear from you via a survey .

There’s a proposal afoot to combine the registration searches from securities commissions across Canada (with the exception of Ontario) into one national search on the Canadian Securities Administrators website . BCSC is leading the project to determine what this national search will look like and we’re in the beginning stages of figuring out what users want and need. We’ve created a survey to learn about how you currently find registration information, what you’re looking for, and how you use it… and we want your opinions.

Please complete the survey  and help us make the proposed national registration search as easy and useful as possible.

We also welcome your feedback on finding registration information (or anything else!) through comments on this post.

I spent some of the Victoria Day holiday weekend spring cleaning, which got me wondering if I shouldn’t look as critically at my investment portfolio as I had behind the stove.

I’ve got this nagging feeling that something’s not right:

• Am I on track to meet my investment goal?
• An opinion I heard at a recent economic outlook conference keeps coming back to me: not to hold on to stocks that I wouldn’t buy today. 
• Family income is down: what does this change in my personal circumstances mean to my investment strategy?

Also, I’d really like to know what I’d be worth if I cashed out today.

Given my investment goal to maximize retirement savings in the next 10 years, my real worry is that I won’t be able to recover from the losses dealt out by the economic downturn. Having stood by quietly as my portfolio eroded, shouldn’t I be doing something to build it back up, especially now that the market is rallying?

This worry makes me a very vulnerable investor, I know. It’s never a good idea to base investment decisions on emotion. And when feelings are running high, with excitement or anxiety, that’s the best time to look over the plan with a cool head. Besides, the decline in my portfolio is history: this is the time to take in the lesson and move on.

So, I took some time this week to download the InvestRight Guide to Investing  and use it to prep myself for a conversation with my broker using the Annual Check worksheet on page 29.

I’ll be offline for the next couple of weeks, but will report what I learned (and decided) from that conversation when I return. In the meantime, why don't you join me by downloading the Guide and asking these questions about your own situation: 

• Am I on track with my investment goals?
• Is my portfolio properly diversified?
• What can I do to minimize the effect of a change in family income (or any other significant change that might impact your investment strategy)?
• What does my portfolio performance look like compared to the market?
• If I cashed out today, how much could I withdraw for myself?

When John Shorthouse and Lang Evans sat down in the TEAM 1040 studio to talk about investing, they covered more than we could use in one campaign. Here’s an outtake that looks at how scammers exploit investors' worries over their investment losses.

Shorty & Evans talk investment fraud: audio podcast

Top takeaways from this audio podcast:

1. People are more vulnerable to fraud when they have lost money and are anxious about making it back. Never make an investment decision based on fear, or any other emotion, but only on a cold, hard analysis of what’s in front of you.

2. In today’s market, many scammers are playing to investors’ desire for safety. Remember: their goal is your money and they’ll work hard to keep you from thinking objectively about your financial situation.

3. There’s a scam for everyone.

Listen to other Shorty & Evans podcasts on YouTube  

Read top takeaways from previous Shorty & Evans podcasts:

• Risk & Reward
• Red Flags
• Wise Investing Plays

If you listened to last month’s Shorty & Evans podcasts , you’ll know we had men in mind, especially the ones who love hockey and the Vancouver Canucks. So, women, this post is for us.

Whatever your interests, age, income, debt-to-savings ratio, relationship status, size (or lack) of investment portfolio, ladies, the research makes it clear that we have work to do if we want a comfortable lifestyle now, and down the road in retirement.

Canada-wide research  carried out in the past few years by the Canadian Securities Administrators , and the BCSC InvestRight’s own 2008 national survey into The 21st Century Investor have turned up telling differences in the investment knowledge, attitudes, and behaviours of Canadian women and men.

In general, women are more risk averse. This is good. The research shows that we are less likely than men to hold beliefs that make us vulnerable to investment fraud. As a result, we are less likely to be defrauded.

But being risk averse and generally conservative seems to stem from the fact that we have limited investment knowledge. That might be okay if limited knowledge didn’t correlate so strongly with lower income, higher debt, less confidence and, ultimately, less opportunity to make the most of our money and financial opportunities.

Happily, there’s a younger generation of women who want it all (sound familiar?) and are figuring out practical ways to afford it.

Case in point: BC’s own Smart Cookies . These five, 30-something women all got into financial trouble ($40,000 of consumer debt) in their 20s. Inspired by an Oprah episode on personal finance, they formed a money group to help each other move past being clueless, careless, and passive about money management. Since then, they have paid off all their debts, been on Oprah themselves, written a book to share their success tips , and launched themselves on a collective new career as finance and investment educators. 

We think the Smart Cookies are a great example of how women can become financially savvy. In fact, they impressed the BCSC so much with their “get out of debt, make more dough, spend smarter, and live a richer life” philosophy that we now partner with them to teach financial life skills to BC teenagers and university students.

In addition to their website, you can find the Smart Cookies on CBC Radio One , Tuesdays at 4:30, on the W Network , Monday evenings at 10:30.

Help us start a conversation about women and investing. What steps are you taking to improve your financial life skills and become financially savvy? Do you have a favourite tool or resource to share with other women? We look forward to your comments.

In this third of three investing podcasts, John Shorthouse  and Lang Evans  talk about wise investing—what to do if you have a chunk of money to invest, why you have to pay extra attention when investing in a private deal, and how to do your research. Have a listen:

Top 3 take aways from wise investing plays 
1. If you have a chunk of money to invest, don’t invest it just because it will save you taxes, or just because you like real estate. Look at the whole deal. Evaluate the risks and make the smart play.

Get the facts before Investing in Real Estate-based Securities.

2. If it’s a private deal, you’re really on your own and you need to ask the questions that regulators ask. For example:

• Who’s behind it?
• Have they ever been in trouble?
• Are they licensed?
• Where’s the money going?
• How’s the money coming back?
• What’s the liquidity?

Find out more about Investing in Private Companies.

3. Your research should involve at least the following steps:

• Find out how to pick an advisor and how to pick an investment with the InvestRight Guide to Investing
• Check your advisor’s registration 
• Check the disciplined persons list 
• Google  the company and the names of its principals
• Get as much documentation as you can from the company. Good deals usually come with a prospectus or offering memorandum. If the company won’t give you detailed information, don’t give them your money.

Listen to the full podcast on YouTube , and share it with your friends and family.

Check out our other Shorty & Evans posts:

• Shorty & Evans Talk Risk & Reward
• Shorty & Evans Talk Red Flags

Was this information useful to you? Let us know how! We welcome your comments.

In Part 2 of the Shorty & Evans investing coaching session, Canucks play-by-play announcer, John Shorthouse , learned about the red flags of investment fraud from BCSC enforcement director, Lang Evans. Shorty called it "a conversation worth listening to".  Here’s the podcast:

What Shorty learned from Lang about the 5 red flags of investment fraud:

• High returns, no risk—There is no such thing!
• Insider tips—A real lose-lose situation. It’s against the law if the offer is real and it’s a fraud if it isn’t.
• Offshore investments—Send your money “offshore” and there’s every chance it’s not coming back.
• Profit like the experts—Often the “expert” is good only at taking your money, not giving it back.
• Your friends can’t be wrong—It's called “affinity fraud” and whether it’s a religious group or your hockey team, the scammer sells to one person and uses that person to sell to the rest of the group. Always do your homework, no matter who offers you the deal.

Listen to the whole podcast on YouTube . We hope you'll share it with your friends and family. And we'd love to know if the information was useful to you. Just leave a comment to let us know.

Check out our other Shorty & Evans posts:

• Shorty & Evans Talk Risk & Reward
• Shorty & Evans Talk Wise Investing Plays

Today we launch a radio campaign on TEAM 1040 . It features Canucks play-by-play announcer, John “Shorty” Shorthouse , and BCSC director of enforcement, Lang Evans. John sat down recently with Lang for a coaching session on investing. In this podcast, Shorty & Evans talk about the risks and rewards of investing.

Top 3 take-aways from risk & reward podcast

1. Be patient. Make the play on your terms. When you're presented with a deal, always step back: any good deal that's there today will the there tomorrow. Look for opportunities and return, but also look at balancing your risk. Don't hesitate to pass the deal to someone with expertise in the field for a second opinion.

2. Most common investing mistakes:

• Buying an investment you don't understand
• Putting too much money in one deal
• Using borrowed money to invest

3. No matter how bad the news in your investment statements, you're better off knowing. When you get something in the mail from your advisor, open it, read it, ask questions, and understand it.

Listen to the whole podcast on YouTube  

Check out our other Shorty & Evans posts:

• Shorty & Evans Talk Red Flags of Investing
• Shorty & Evans Talk Wise Investing Plays

My gym buddy and I are about the same age and have our eyes on retirement in the next 10 years. We both have jobs we love and are fortunate to have a defined benefit (instead of a defined contribution) pension plan. She’s divorced. I’m married. We each have one child. We’re healthy. Life is good, and the future looks rosy. 

What’s bothering my friend is that retiring alone seems scary. She’s not sure she knows what she needs to know and she’s not sure who to ask. 

You can imagine how quick I was to tell her all about InvestRight.org and how our Guide to Investing could help her start asking the right questions—of herself, her advisor, and her investments.

Then I got to thinking: my retirement doesn’t seem scary because the rosy future I envision involves two people, hubby and me. According to a BMO report   published in January, statistics tell another story. 

Whether alone through divorce or by outliving one’s spouse, “If you are part of a couple now, there’s a strong likelihood that you will find yourself single at some point during retirement.” Turns out my friend and I have more in common than the quest for strong bones and firm arms. 

The report spells out simple steps we can take today to prepare for retirement. Three of them focus on the financial side of life:

Plan for retirement as soon as possible.  Canadian singles—male and female—are less likely to be informed about their financial well-being in retirement. When asked if they had gathered retirement information during the past five years, 60% of pre-retirees who knew their retirement date told surveyors “no”.

Build and sustain wealth. Hard as it is to picture oneself 10+ years in the future, it is sobering indeed to learn that odds are that one will have much less income at age 80 than at age 67. (Note to self: the decline is sharpest for the “suddenly single”.) And, 71% of the suddenly single say they didn’t have a plan to deal with their new life, and felt the pinch. 

Understand income and expenses.  98% of a single person’s income goes to household expenses, compared to 81% for couples. It’s easy to dip into savings to meet spending demands during the earning years. Singles and future singles who manage their income and expenses today are less likely to outlive their money by drawing down their savings too quickly in retirement.

Here are three things you can do this week to get your head around retiring and improve your odds of retiring comfortably, alone or not.

1. Calculate your retirement needs. Your bank and many financial websites have retirement income calculators. Here’s one from globeinvestor.com  that uses your financial input to calculate how much you will have at retirement and how long it will last. (Note to self: You may need to save more!)

2. Read a book. One that came across my desk this year is The New Rules of Retirement  by Warren MacKenzie and Ken Hawkins. It includes 38 rules, from Throw away the old retirement myths to Learn the seven steps to a perfect portfolio. With a list of “what you can do now” and a “bottom line” summary at the end of each rule. 

3. Make an appointment with your investment advisor. And before you have it, spend some time with the annual check up section of the InvestRight Guide to Investing.

Are you single and thinking about retirement? There are millions of Canadians like my friend from the gym who would love to hear how you’re approaching it. Let us know! 

Are businesses’ profits down because employees are stressing about money? Can increased employee financial literacy increase employer profits? If you ask the Personal Finance Employee Education Foundation (PFEEF) , the answer is a definite YES.

According to PFEEF, raising income levels will not address the problem. I guess someone who is irresponsible with $1.00 will be the same with $1,000,000, though they may have more fun with the latter. All joking aside, I think the PFEEF makes some very interesting arguments for why employers should offer financial education for their employees. Though it’s a U.S. organization and some of the references and research are not relevant to Canada, the basic concepts certainly seem applicable to Canadian employers as well.

The PFEEF is a not-for-profit private foundation established in 2006 for the scientific purposes of serving the public interest for non-commercial purposes by educating employers on the bottom-line benefits of workplace financial education that improves financial literacy and personal financial behaviors (read more) . The organization attempts to identify the best work place financial programs and help employers understand the benefits of employee financial education. You can watch a six minute video Employers Profit When They Care About Financial Literacy  to better understand their position.

The top 3 messages I took away from the video were:

1. A financially stressed employee can cost an employer $450-$2100 annually.
2. 1 in 4 employees are financially stressed.
3. For every $1 spent by employers on financial education, they gain a return of $3 or more.

One point I question is whether an employee who spends work time stressing about financial matters would simply spend it stressing about something else if you took away their financial concerns. That said, in this recession employers are looking for ways to cut costs and improve profits. Perhaps a workplace financial literacy program could help do both.

Do you participate in a financial education program at work? If so, I would love to hear your stories, tips, and suggestions based on your experience.

Are you interested in having a work place financial education program? The PFEEF site  provides materials to help you convince an employer to implement one. If you make a pitch, please let us and our readers know how it went by leaving a comment or sending me an email.

I need to give credit to the Pre-retiree investor education outreach project group from the North American Securities Administrators Association . The group members introduced me to PFEEF during a strategy meeting a couple of weeks ago. The project group is a hardworking team of individuals dedicated to helping investors become more financially literate.

New York investment banker Bernard Madoff charged this week with 11 counts of fraud amounting to $65 billion. Texas banker Allen Stanford alleged to have bilked investors out of $8 billion. Vancouver Island mutual fund salesperson Ian Thow swindled 26 clients out of $6 million—a deception the BC Securities Commission called “one of the most callous and audacious frauds” this province has seen.

Clearly, there’s investment fraud in our markets. If you learn to spot a scam before it grabs you, you can avoid losing your money. Here are five tools to help you guard yourself against fraud.

We want to know what works best for investors. Which tool do you like best, and why?

A few weeks ago, Celebrity Calamity  went live. It's an online financial literacy game aimed at young women between 18-35. It's catchy. In fact, my wife, who is within the target market, played it for an hour straight with mutterings here and there including “she can’t afford that!” when her star Celeb suddenly bought a private jet. There's a short write-up on it over at Fast Company .

Funnily enough, I happened upon Celebrity Calamity just after talking with a friend over coffee about the possibilities for creating a personal finance game. Not an online game, but an in-depth one made specifically for gaming consoles .

Given the popularity of games such as Wii fit , which focuses on physical fitness and brain games such as Brain Challenge , Brain Age  and BUZZ! , which exercise and test brain skills, we wondered if financial fitness could be the next evolution in personal health themed games. Gaming consoles are starting to appeal to audiences beyond the youth market such as the family entertainment sector  and even seniors  - in Toronto 10 retirement homes competed for gold  in a self-organized gaming Olympics!

Now I realize there is a lot involved in producing a full-on video game, so my friend and I also pondered the questions: Where does one start? Who does a non-profit partner with?

Any suggestions? Do you think this is a worthwhile pursuit or are we just gaming ourselves?

Links to other financial literacy games:

• Visa Practical Money Games 
• Cyber Budget (in French only) 
• FSI: Fraud Scene Investigator 
• Lemonade Stand 
• Utah State Office of Education financial literacy resources 

Are there any financial literacy games that you like? Add to the list by adding a comment.

You pick up the phone. Hello? Hello? Hello! Nothing at the other end but empty space. It could be: 

o Your mother
o A charity canvasser
o Your local political candidate
o A licensed investment advisor
o A pollster
o A boiler room shyster

That empty space at the end of the line probably means the call is being connected to a call centre. It could be at the other end of the country, or it could be half-way around the world. If you don’t hang up, then you’re on your way to talking to someone who wants to sell you something. If that someone is a boiler room shyster, he probably has a golden tongue, a sham investment, and only one thing in mind: separating you from your hard-earned savings as quickly as possible.

March being Fraud Prevention Month in Canada , we want you to know the rules of engagement for avoiding boiler room scams.

Rule 1: Hang up. If you’ve walked a fair ground midway or attended a fund-raising lunch, you know that once you start listening, your hand is already on your wallet.

Rule 2:  If you don’t hang up, ask questions:

o Are you registered to sell ___ in Canada? To sell investments to you in Canada, a person must be registered by your local securities regulator, either directly or through the Investment Industry Regulatory Organization of Canada . A caller offering a real estate investment would have to be registered with a provincial real estate regulator  or council.

o What is your name and the name of your firm? If you can’t get this information, hang up. No need to be polite. But if the caller gives it to you, you can look him or her up.

o What is your phone number? Tell the caller it’s your policy to do your own due diligence before buying any investment and that, if you’re interested, you will call him back after looking up his name/firm. If you can’t get this information—you guessed it—hang up!

Rule 3: If you think you’ve been called by a boiler room operation, report it . You may think that nothing will come of your effort, or that with nothing lost there’s nothing to gain by reporting. But boiler room operations are huge international businesses, and your tip could set off an investigation that could save thousands of others from losing their life savings.

Find out more about boiler room scams:
Boiler room scams: Could you be vulnerable?  How they work, what to watch for, what you can do to protect yourself. New from the Canadian Securities Administrators .

Lifting the lid on “boiler room” scams , The Guardian. Former boiler room employee tells it like it is.

Experienced investors are most common boiler room victims . Investor alert from the UK’s Financial Services Authority, includes first-person story by a boiler room victim

Boiler Room—the movie . Live the pain of being scammed without getting hurt by watching this cautionary tale.

Securities commissions across North America have been doing investor education for a long time. Until recently, it was regarded as a nice thing to do, but not a necessary thing to do.

In British Columbia, we have been ramping up our education work at an accelerating rate over the past decade. We see it as an important and integral part of regulation.

Today, with the credit crunch and resulting financial meltdown, investor education, and financial life skills training, has become a hot topic with policy wonks, educators, governments and the media. Now there is chorus of voices from around the world that are calling for more effective programs to help investors protect themselves by asking critical questions of their advisors and learning how to protect themselves from fraud.  As well, there is a call for programs to teach young people financial life skills so that they grow up more equipped to manage their money. 

I have been invited to talk about these issues as a panellist at the joint investor education conference of the International Forum for Investor Education (IFIE) and the International Organization of Securities Commissions (IOSCO) next week in Washington DC. I am on two panels—one about target marketing investor education programs (I am going to talk about our school program in BC which we have been marketing for five years) and the other is about moving investor education into the 21st century (I will talk about using social media together with traditional media in one integrated program.) 

If you have any thoughts, ideas or comments on these subjects, I would be delighted to hear them.  I will also be twittering my observations on the conference: @SPBowles

In January, The Wall Street Journal  published an article Six Lessons for Investors  by John C. Bogle. Even though the article is over a month old, the content is still timely-especially given the recent release of an annual poll by TD Waterhouse that shows Canadians are losing confidence in their investment savvy . The six lessons won’t magically bring back investor confidence, but it’s not a bad foundation to build on.

The six lessons for investors  discussed in the article are:

1. Beware of market forecasts, even by experts
2. Never underrate the importance of asset allocation
3. Mutual funds with superior performance records often falter
4. Owning the market remains the strategy of choice
5. Look before you leap into alternative asset classes
6. Beware of financial innovation

Of  course, how these lessons apply to you will depend on your personal situation.

There are guidelines for making RRSP contributions  and we all need to follow them to benefit fully from this time-honoured tax-deduction vehicle. But the one thing you don't need to know by the contribution deadline on March 2 is the final form of your investment. Don't let yourself feel pressured by the RRSP investment advertising that's in full swing this month. What you "do" is up to you. If you aren’t ready to decide what type of investment to make, you can still make your RRSP contribution and leave it in cash, in the form of a deposit or cash balance at a financial institution or registered securities firm. Then, when you’re ready, you can choose the type of investment that fits your investment strategy.

Canada  Revenue Agency sets your contribution limit for 2008  based on your 2007 and previous years’ returns. You can find how much unused contribution room you have on your 2007 Notice of Assessment, or through CRA’s Tax Information Phone Service . To see what your 2008 contribution will put back in your pocket this year, just plug your gross income, contribution amount, and the province where you live into Morningstar Canada’s RRSP calculator .

Well, we have a challenge for them that requires mental, not physical, work. Why not see if you can get your kids (15 - 21 years old) to take some time away from Facebook—with the carrot of a possible $750 scholarship—to test their financial life skills?

Students have to answer a set of multiple-choice questions using financial situations they might face as young adults. The website also offers worksheets and a resource guide for teachers and parents.

The Financial Fitness Challenge  closes on February 28 and is sponsored by the Canadian Securities Administrators . Also available in French .

Have you read the December 17, 2008 report  on product suitability by the Joint Standing Committee  on retail investor issues? Three questions were put to participants:

1. What information about an investment does your advisor give you before and after you buy it? Is there any other information you would like?
2. Should specific investment products be prohibited from sale to the public, or should all products be available to investors and investors be allowed to make their own choice?
3. Should regulators focus on regulating specific products or on regulating how products are sold and distributed?

It’s a great idea to reach out to retail investors to get their feedback and I hope that more people participate in future consultations. It seems that the focus of the report is how can regulation help ensure that investors are presented with suitable investments.

There is no doubt that regulation is necessary to protect investors. However, as with other important social issues such as recycling and drunk driving, change requires both regulation and education. As investor education is my line of work, and the topic of this blog, I kept approaching the report from the context of how can education help investors decide if an investment is suitable.

Here’s a summary of the questions and ideas that came to me as I read the report:

Investment information
Having the right information about an investment is key to ensuring it’s suitable for your needs. If you know what information you want, are you getting it? If not, why not? Can any of our existing investor education tools such as the worksheets in our Guide to investing help you get the information?

Would interviews with advisors about their investment review processes and about how to best get answers to your questions help? How about step-by-step tutorials on due diligence, background checks, and how to read investment documents such as annual reports?

If you’re unsure what information you want, then where do you look for help? Does the information we provide on particular investments such as mutual funds or principal protected notes (PPNs) provide a good starting point for such products?

Back to basics, but in a different way
Perhaps we need to delve deeper into the basic concept of suitability. Should we develop more material or tools to show you what suitability really means to you and how you can apply it? How about a program or application to help you better understand and apply the concepts of investment objectives and risk tolerance?

An investing step you can take now
As regulation and education evolve to address investor’s needs, remember there is one action you can take right now to better protect yourself—Don’t buy an investment unless you truly understand how it works. Insist that your advisor provides you with investments you understand and that fit your investment profile.

Making time to invest right
If you think you don’t have time to learn about investing or to review each investment opportunity, you might want to look at how you allocate your time. Dale summed it up nicely in his comment to Affinity at the heart of Madoff mayhem:

It amazes me that people can spend days pouring over a TV purchase, agonizing over every detail and grinding for a $100 savings, yet throw $20,000 - $30,000 into stocks or mutual funds on a quick phone call.

Also, you can be sure that the time and energy you would have to spend on trying to make up for losses due to an unsuitable investment would be much more than the extra time you need to check it out before you invest.

Thoughts? Suggestions? Questions? Leave a comment.

Eyes around the world were on Washington, DC this week for the Barack Obama inauguration . The 44th president of the United States is a man whom America’s favourite billionaire Warren Buffett  says is the “absolute right commander in chief” to guide his country through a financial crisis that Buffet defines as an “economic Pearl Harbour”.

Last year, Obama’s rallying cry—yes we can!—resounded on both sides of the border, calling people to believe in themselves, have hope for the future, and take responsibility by committing to small, doable steps. In his inaugural address this week, he recognized that the “greed and irresponsibility of some” had led to a weakened US economy, but he also pointed to “our collective failure” to make hard choices.

Even at the other end of the continent, I couldn’t help feeling part of that collective failure. Obama got me wondering: Had I really tried to understand the economic indicators as they gathered like storm clouds over 2008? Did I understand my own investments well enough to react appropriately as “market volatility” became a household phrase? How much time did I actually spend reading to increase my investment knowledge? And, honestly now—did I have the habit of making hard financial choices in order to secure a more comfortable retirement?

Maybe not. It's just possible that I didn't take full responsiblity for my investing activity or, as Dale commented on last week's post, Affinity at the heart of Madoff mayhem turn my brain on fully. Luckily, my retirement is still about a decade away, so there’s time to make up for last year’s losses. But next time an economic tsunami threatens, I intend to be better prepared. And to that end, I’m taking small steps now. Here are three at the top of the list. (We offer the links FYI, but the BCSC does not endorse the outside sites or content.)

1. Buy a book about investing (or take one from the library) and read it! Here’s a list of some Canadian titles  worth checking out.

2. Find yourself a new blog that resonates with what you know and want to learn, and subscribe. The Canadian Capitalist blog  has a list of Canadian financial blogs  to get you started.

3. Read your monthly investment statement, make a list of questions, then call your advisor for an appointment to discuss your portfolio. The  InvestRight.org Guide to Investing has a nifty section called Annual Check-up with questions you can add to your own.

Have you figured out yet what the market turmoil has done to your investment / retirement goals? What steps are you taking in response?

Anthony’s Take the Madoff Test asked us whether we would have been strong enough or smart enough to recognize Madoff’s Ponzi  scheme for what it was, in the absence of really obvious red flags. But which is more surprising to you: that Madoff  was able to dupe knowledgeable, high-profile investors, or that he took money from members of his own extended family?

It's a hard one to call. You’d think sophisticated investors would have the smarts and tools to look out for themselves. But then we all want to trust the family and close friends we count on to watch out for our best interests. Really, it's not so surprising that Madoff's family and trusted friends fell for his pyramid scheme but that the investment mogul had the nerve to offer it to them.

Turns out just about anyone can be a vitim of investment fraud, as the Canadian Securities Administrators  discovered in their 2007 Investor Study: Understanding the Social Impact of Investment Fraud  .

This study found that of the million or so Canadians who had at some point in their lives been a victim of investment fraud, more than half were introduced to the fraud by a friend, neighbour, co-worker, or family member. There’s a name for this—affinity fraud—and it involves any group of people well known to each other through connections like religion, ethnicity, work or social bonds and, yes, family. The way Madoff worked his Jewish connections through prestigious clubs, businesses, charities, educational institutions, and investment firms in New York and Florida is classic affinity fraud. 

Think it could never happen to you? Have a look on the InvestRight YouTube channel  at our 3-part video documentary about affinity fraud in religious congregations, Preying on Those Who Pray .

The key to affinity fraud seems to be that we lower our guard with people we trust. Even when we know the red flags of investment fraud, we tend to miss them or turn a blind eye when someone close to us waves them in our face. Sometimes the person close to us isn’t the scammer at all, but someone who is innocently promoting a scammer’s “opportunity” not knowing what it is. When you’re on the receiving end, it may seem rude to be suspicious and it can be awkward saying "no". But think what being scammed would do to the relationship.

How do you handle your guard with family and friends? Do you have a way of sniffing out bad stuff with them that’s different from how you protect yourself with people you know less well? Has a family member or close friend ever approached you with an investment opportunity? What happened then?

BTW:  It you ever do come across an investment opportunity that doesn’t seem quite right, report it to the BC Securities Commission online, or call 604-899-6854 or 1-800-373-6393 (toll-free across Canada). The BCSC and other regulators rely on reports to help identify suspicious and illegal market activity. Your report can help them go after scammers and keep other unsuspecting investors from becoming victims.

In Take the Madoff test, I talked about how our fears, assumptions, and desires  make us more susceptible to investment scams. I recently read the article 5 ways to tame your market fears  by Joe Light over at Money Magazine on CNNMoney.com  that extends this concept to retirement planning. The author tells the story of a couple in their mid 40’s and 50’s saving for retirement by investing almost entirely in government bonds and cash. While such an investment strategy may seem tempting in these uncertain times, the article goes on to discuss how such a fear-driven temptation, if acted upon, may do more harm than good in helping you achieve your retirement goals.

The author suggests that the best defence when investing for retirement is to take your day-to-day feelings about the market out of the picture altogether and provides these 5 steps to help you do that:

1. Keep your eye on the prize and remember retirement saving is about the goal not the journey.
2. Figure in risk(sort of)—when you want to retire is the main thing that should dictate your asset allocation, not your fear of loss.
3. Make a statement by putting your goals and strategy in writing. (see One simple step can make your goals more attainable to learn how writing it down can make it more real).
4. Shut your eyes and arrange for automatic investment payments to limit the risk that you will make emotion-based investment decisions.
5. Consult a third party to help you remain clear and objective. The third party should be qualified to provide financial advice and have no interest in the investments you buy and sell.

How do you handle your market fears while investing for retirement?

You are probably hearing a lot about the Bernie Madoff ponzi scheme . Madoff, a very prominent person in the finance world, confessed to running one of the largest investment scams in history—$50 billion. For thirty years, Madoff paid returns to his existing investors with money he received from new ones. We don’t know yet whether Madoff even put the investors’ money into any real business or investment.

The Madoff test

Sit down in a quiet place by yourself. Close the door if there is one. No one has to know you are taking the test. There is no need to share your answer with anyone. All I ask is that you be 100% honest with yourself.

Okay, now that you’re ready, here’s the test:

If you have the opportunity to invest in something that:

• your trusted friends tell you it has been paying returns of 10-17% per year and show you the statements to prove it
  
• highly paid financial advisors recommend to wealthy, socially elite clients 
  
• has been in business for a long time
  
• is by invitation only
  
• is run by a prominent Wall Street financier who is very professional, well spoken, and friendly with a clean record

Are you inclined to invest?    _____YES      _____NO

If you answered yes, then read on. If you answered no, then you can stop here and perhaps share some of your insights in a comment.

Traditional advice about how to avoid a Madoff scam

What is unique about the Madoff case is that it wasn’t just small investors that were scammed. Highly paid “qualified advisors”, large non-profits, and wealthy clientele lost their money to Madoff - people with the money and connections to hire independent professionals such as lawyers and accountants to review investment opportunities.

The news is now flush with stories of how to avoid Madoff type investment scams. How to avoid Madoff Mayhem  , The Madoff red flags were there all along  , The Madoff red flags, should we have known?  , and 5 ways to avoid a Ponzi scheme: Madoff edition  . The advice in these articles is the same as provided by most investor education advocates, including us. Do your due diligence, be aware of the red flags, ask the company and your advisor hard questions, and don’t invest in anything you don’t understand.

While some did follow these rules, many did not . Why didn’t they see the red flags and stop? Did they not learn about red flags? Almost everyone seems to know the most common one If it’s too good to be true, it probably is. In fact, it’s so well known that it’s become a cliché. Perhaps the current thinking on how to avoid scams relies too heavily on investors being rational when they are really driven by emotions and assumptions. A comment in the Business Week Story: How to Make a Madoff  story summed it up nicely: When everyone else is on the train who wants to be left behind? No matter, there is nobody brave enough to ask where the train is really headed.

The missing first step to avoiding investment scams

Maybe it is unrealistic to ask investors to be rational and unemotional from the get go. Maybe it’s too uncomfortable for investors to ask others tough questions right off the bat. Perhaps, we need a new first step to help us move from an emotional state towards a more rational mindset when investing.

I suggest the first step be self-examination to understand our real motivations for investing in a particular opportunity. In other words, be honest with yourself. For example, do you want to invest in this new hedge fund opportunity because:

• it says it’s safe and guaranteed?
  
• the wealthy are supposedly making money from it?
  
• you are afraid of being left behind while your friends and family make money from it?
  
• you don’t want to look ignorant by asking questions?
  
• you don’t have time to investigate it because you assume that someone else has?
  
• you want to make loads of cash, no questions asked?

If you answer yes to any of these questions, then beware. Such fears, assumptions and desires  tell us nothing about the merits of an investment or if it even exits. Are we now ready for a more rational approach? If so, then take a look at our Guide to Investing and use the worksheets to help you ask the right questions.

This is just a rough outline for a different approach. How can investors change their behaviour to look at investing opportunities from a more rational perspective?

By the way, if you’re thinking – as long as I get out before the Ponzi scheme  collapses I can make a profit - think again. In the Madoff case, investors who did cash out early may have to pay it back .

What were your goals this holiday season? Did you set yourself a gift budget? A calorie budget? An exercise schedule, or maybe a list of the people you really wanted to see before 2008 wraps up? If so, did you write it down?

Writing things down helps us remember, but it also seems to stiffen our resolve to stick with something even when we can’t see how it’s going to end. A study of Harvard students, ten years after graduation, showed that those who had specific goals made salaries three times greater than the salary of the average Harvard graduate. Those with written goals made ten times the average.

Imagine the same impact on your investment goals. The economic downturn we’re embroiled in now won’t last for ever. Things will turn around. While you’re waiting, why not get serious about where you want to be five, 10, 15 years from today? Are you just starting out , or getting ready to retire? 

Whether you decide to set yourself SMART goals —goals that are Specific, Measureable, Achievable, Relevant, and Time-bound—or reach for the sky with the lesser known DUMB model —Dangerously Unattainable, Monstrously Big goals—start by stealing a bit of time for yourself this holiday week to look ahead, imagine what you want to achieve, and write it down. In another post, we’ll look at using those goals as the foundation for an investment plan.

What’s your experience setting investment goals? Has writing them down made any difference to the way you handle your investments decisions?

PS: Just a reminder that we provide links to other sites for information only and don’t endorse or recommend these sites.

A comment to our post Welcome to the InvestRight Blog! asked if we had information about websites that offer antivirus tools but, once there, actually offer investments using links to investment sites of dubious origin.

I checked with our inquiries group. We haven’t received any other information about this type of promotion, but it made me think of the common traits this practice shares with investment scams. The most common one is using a person’s fears and desires to get them to bite: WARNING! You have a computer virus! Click here to fix it now for FREE!

We have a Red-Flags program to help investors spot the most common pitch lines used by con artists to exploit investors’ fears and desires. We developed them by researching both perpetrators and victims of investment fraud and reviewing fraud cases over the last few years. However, the comment to our first post made me wonder: Are there common investment scams that our research missed or are new investment scams becoming more prevalent? If so, what are those scams?

So, my questions to you are:

1. What do you think of our Red-Flags program? Does it cover the most common investment scams? Is it helpful to you?

2. What pitch lines for dubious investments are you coming across these days, online and offline?

Remember the story about Jacques Demers , the Montreal Canadiens’ hockey coach who “came out” as an illiterate adult in 2005?  He had carefully organized his life so that other people took care of anything that involved the ability to read and write.

I was a bit like Mr. Demers, only in terms of financial life skills. For years, I made do with the most basic financial literacy and was content to delegate my finances to someone else.

Sure, I kept a budget. I eventually took the time to understand what a stock  is, and a bond , and a mutual fund .  These days, I’m saving for retirement, and I meet with my financial advisor every year to evaluate my progress. I even have a financial plan (in my head). But it’s surprising how easy it is to skim the surface, not quite understanding what the advisor is saying, going along with  recommendations without asking basic questions—like, what’s this going to cost me in fees? and, is there something else that’s cheaper, or has less risk?

It turns out I’m not alone. According to BCSC research published in October 2008 called The 21st Century Investor , Canadian investors know the basics—stocks, bonds, mutual funds—but their knowledge drops off sharply when the topic shifts to more complex products  like Exchange Traded Funds , known as ETFs.

It is also clear from the research that while Canadians often understand what they should be doing, their behaviour tells a different story.  For example, almost 90% of Canadians believe that having a financial plan is important, but over half (58%) don’t have one.  Most (92%) agreed on the importance of conducting independent research before investing.  But almost half did not personally research their most recent investment. 

So if you’re ready to start increasing your financial life skills by applying those skills to better manage your money, here are some basic resources to get you started.

2 from BC Securities Commission investor education

• The City / La Zone  The BCSC developed this online financial life skills program in partnership with the Financial Consumer Agency of Canada (FCAC). It targets young adults, but just about anyone starting out should find it helpful, engaging, and easy to do.
• Guide to Investing: How to Work with Your Investment Advisor Part one of the InvestRight Guide to Investing shows how to make the most of your relationship with your financial advisor, complete with definitions, important questions to ask, and worksheets.

3 from the Canadian Securities Administrators  (CSA)

• Investing Basics  You know you should be more involved, but where to start? This guide can help.
• Investments at a Glance  Learn about different kinds of investments and what to keep in mind when considering them.
• Understanding Mutual Funds  A plain language primer on the investment type most Canadians hold either in their own portfolios or through their pension plans.  

Other stuff

• InvestRight Scam Meter Wondering if the investment you’re considering is legitimate?
• RRSP calculator  Many banks and other finance sites have them. This one is offered by Morningstar Canada . Working out what you need to accumulate to retire can be sobering exercise.
• Investment Fraud Awareness Quiz  Test your fraud awareness IQ with this quiz from the North American Securities Administrators Association .

How are your financial life skills? If you're already on your way, do you have any great sites or books to recommend? If you’re just starting out, how can we help?

Who we are
You might be wondering “what the heck is InvestRight?". InvestRight is the BC Securities Commission  investor education  program. Its purpose is to help investors protect themselves against investment scams and take steps to choose investments that are right for them. Our programs include live seminars, high school class resources, a website with online tools and information, and partnerships with community leaders.

We, Brenda Lea and Anthony, are the initial bloggers. We both work with the Commission's investor education team to help create programs for InvestRight and we are co-writing this welcome post right now.

Why a blog
The short answer:
To share experiences, ideas, programs, research findings, and feedback so that we can build programs and tools that best serve you in becoming an aware and capable investor.

The long answer:
As our programs evolve, we continually ask ourselves these three basic questions:
1. Are we reaching investors?
2. Are we giving them what they need?
3. Are we helping them avoid scams and choose suitable investments?

In the early days, we travelled around BC meeting people face-to-face in seminars about how to spot and avoid scams. Typical for the times, we asked people to complete satisfaction surveys, where we usually found out that they were happy we’d come. What we didn’t learn was whether investors were getting what they really needed to become more aware and confident. Were we making a difference? If so, what kind of difference? Did they feel more capable? Less vulnerable? Did we actually help them avoid an investment scam?

So we launched research projects to find out more about investors—what they know and their experience with investment scams. We created InvestRight. Now we had a better grasp on the needs of Canadian investors, but we didn't know what worked best for individual investors. We still needed to understand what would help an investor become more aware and capable.

We think that the best way to answer this question is a ongoing dialogue with you—a conversation to share experiences and ideas with the goal of making better investor education tools. This is why we are blogging.

Posting, comments, and updates
To start off, we aim to post every Thursday. We hope that you will comment on the posts, download the tools, answer the polls, read the research, watch the podcasts, share it with family and friends, and give us feedback. We especially hope that you will help us understand who you are and what you’re looking for on the road to becoming a better investor.

We will review all comments before publishing and post those that don’t fall outside our comment policy. The reason for our comment policy is to ensure that the blog remains on topic and is a productive, open, safe, and respectful forum for discussion and sharing.

Subscribe to the InvestRight Blog to receive updates via email or an RSS reader. That way, you won’t have to keep checking back here for the new stuff. Then again, if you prefer checking in when you want, just bookmark the blog so we're easy to find.

Now, let’s talk about investing.