Washington State Department of Financial Institutions

It's Your Money

This booklet is produced by the Department of Financial Institutions Securities Division. It is not designed to give investment advice. It will not tell you what to invest in or who to invest with. It is designed to help you become a better educated investor by offering tips on how to choose your investment professional, questions to ask about investments, and how to spot the warning signs of scams and frauds.

The vast majority of investment professionals and investments firms are honest. Most investors will never be a victim of securities fraud. Legitimate, sensible investing will return a profit over time. There are, however, people and companies that engage is fraudulent activities. They don’t care who they victimize and the defrauded victims rarely get their money back.

The Department of Financial Institutions Securities Division has a four-fold mandate.

We are responsible for the:

What can the Securities Division do?

What can't the Securities Division do?

Three things to remember when investing.

You, as an investor, are ultimately responsible for your investment decisions. The money you invest is yours, earned by your hard work. The future you are investing in is yours. You owe it to yourself to become an educated, responsible investor. Towards that end, we hope that this booklet will be helpful.

Whether you make or lose money in the market depends on how your investments perform. That's what the risk in investing is all about. Investors may lose money because of the "ups and downs" of the market. There is always risk when investing in the securities market.

It is never too late to become a more educated investor. It doesn't matter if you are old or young, male or female, rich or poor, investing for a long time or just beginning. This booklet is just one of the educational resources available. There are magazines, books, newspapers, and web sites devoted exclusively to investing. There are finance programs on both radio and TV. There are also personal finance columns in most local papers. All of these resources are useful. Some will answer questions and some will leave you with good questions to ask about your investments.

The Department of Financial Institutions Securities Divisions offers an investment presentation that is available, free of charge, to groups of 50 or more. To find out more about this program, call 360-902-8731 or 1-877-RING DFI (1-877-746-4334).

Taking Charge of Your Investments

Mapping Out Your Financial Goals

Going to an investment professional can help you decide in what products you want to invest, but first you should have a firm grasp of your short and long-term goals, your needs, and your tolerance of risk. Most investors, whether they are first time investors or they have invested for many years, fail to draw up a complete financial plan. Those that do, often fail to keep it updated. Ask questions such as:

Once you have determined your needs and tolerance to risk you are ready to take a look at the different investments. Make sure that your risk tolerance and your investment strategy match.

When you begin a relationship with a broker or financial adviser, you will be asked a series of questions. Your investment professional will need specific information about your income and assets, your career and retirement plans, and the level of risk you are willing and able to take in investing. This is your financial profile. Answer these questions honestly. This is the information that your investment professional will use to make his or her recommendations. See New Account Forms.

Understanding Investment Products

Whether you make or lose money in the market depends on how your investments perform. That's what the risk in investing is all about. Investors can lose money because of the "downs"; in the market. However, they can also make money on the "ups". Knowing how the different products perform and their risks can greatly increase your chances of making good choices in your investments.

This means you need to take time to understand the various investment products. You need to understand their goals and risks. Never invest in something you don't understand. Ask yourself "What is my objective"; Is it conservative with safety of principal most important? Is it income oriented where regular payments from the investment will be used for living expenses? Am I investing for long-term growth that may carry more risk than either income or safety? Or am I comfortable with a higher risk in hopes of higher gain? Or some combination?

The following investment goals or objectives, or some combination of these, can provide an answer.

Safety is a conservative investment goal that carries minimal risk of loss of principal.
Income reflects an investment goal that provides income through regular payments to the investor.
Growth investments are for long-term investing. Growth investments usually carry a higher risk than either safety or income investments.
Speculation is the riskiest investment. With the high risk usually comes the possibility of higher gains.

These examples are only some of the different products and combinations that are offered. An investor doesn’t need to become an expert in all the different stocks and mutual fund products, but they need to have a basic grasp of the terms used to describe them.

Aggressive growth funds have the potential to return the highest returns, but they can also experience the greatest losses.
Equity income fund managers tend to look for income more than growth, therefore, they can be less risky.
Income funds are more appropriate for conservative investors as the funds usually invest in utility and blue chip stocks. They may not return as much growth, but are safer.
Money market funds invest in cash instruments - short-term government and company loans and certificates of deposit. These funds are the least risky of all the above.

Investment Basics

With the exception of banks insured products, there will always be a degree of risk involved in investing.

Risk and return go hand-in-hand. Higher risk usually mean greater risk. Lower returns promise greater safety.

If anyone guarantees your investment against loss, call the Washington State Securities Division.

Never invest is anything that you don't fully understand.

Focus on the whole range of the investment's characteristics in your decision-making. Do not simply focus on the return. Before you purchase an investment, you should understand the following:

You should never rely on oral statements for assurance - get it in writing, and make sure you understand the information you receive. Check it against your own goals and risk tolerance. Get the opinion of an outside source if you are not sure.

If you are considering a mutual fund, for example, make sure you get answers to the following?

Building a portfolio that is best for you should be based on your age, financial needs, and tolerance for risk. Just looking at funds that made the most money last year instead of how funds performed over the past 10 years could lead to trouble.

Your local library is a good source for publications on investing. Most financial magazines are available. Check the "Morningstar Mutual Fund Report" and "Value Line Mutual Fund Survey" for starters. Both contain analyses of most of the major mutual funds.

The Internet has literally thousands of web sites dealing with investments. There are many very good ones and many very bad ones. Again, use your common sense and check out any information you see.

The Securities Investor Protection Corporation (SIPC)

Unlike the Federal Depository Insurance Corporation (FDIC), the SIPC is not a government agency. The SIPC only offers protection if a SIPC member fails financially and is unable to meet obligations to its securities customers. SIPC doesn't protect an investor against loss resulting is the ups and downs in the Market nor does it cover loses from bad advice, unsuitable recommendations, or fraud.

Choosing an Investment Professional

You don't have to hire an investment professional to invest. But if you decide that you want the services of one you will find the number of investment professionals is incredible. They are known as; brokers, account executives, account representatives, financial planners, investment advisers, financial consultants, etc. Those that have letters behind their name such as; CPA AFPS, CFP, CFC, etc., must pass certain educational requirements. All must pass a series of tests.

Some work for national or international corporations and some are as small as one person. Their services and commissions will vary significantly.

You basically have two different types of brokerage firms to choose from. The full service brokerage firm can recommend a particular product, research a product, sometimes draw up a financial plan, and provide you with a person that will handle your investments. The discount brokerage firms basically buy and sell the investment products you tell them to. They do not offer advice or do research. Even though the full service brokerage firm will charge more in commission fees, a novice or inexperienced investor may feel more comfortable getting the extra service. If you are a more experienced investor you may want to use the discount brokerage firm.

Check with friends and trusted colleagues for their recommendations. Choose three or four likely candidates. Call and make an appointment to interview each one. Take your financial plan with you. Ask each one about:

After the interview, review your notes and impressions. Did you feel comfortable or uncomfortable? Did the prospective investment professional try and sell you a product during this initial interview (a no-no)? Was there any information that you asked for that they seemed reluctant to or would not give you? If you were interviewing an investment adviser, did they give you both parts of their Form ADV openly? See Sample Investment Professional Disclosure Form. Have you called the references and checked out the performance and service of the interviewee?

Call the Washington State Department of Financial Institutions Securities Division and check to make sure that they are registered. Ask about their disciplinary history. Ask about the disciplinary history of the firm. The Securities Division has access to a National database of broker/dealers. See Sample CRD Printouts.

Opening your new account

Once you have selected your investment professional and determined your financial goals, you will be asked to fill out a new account form. See Sample New Account Form. Read every line on the form, make sure all lines are properly filled out, and get a copy of the signed form for your records (before you leave your investment professional's office). Be honest in filling out the new account forms. If you aren't, your investment professional will not be able to make suitable recommendations. Don't sign the form if you don't understand everything.

If your investment strategy, level of income, or net worth changes over the years, be sure to update your account form and keep copies of each update.

There are a couple of items that need to be discussed here. First is the Margin Account. A margin account allows you to borrow money from the brokerage firm against your securities. You have to pay interest on that loan and if the securities drop in value, you are responsible for the full amount borrowed. Also, your investment professional may sell any security in your account to cover the shortfall without notice to you. This type of account involves a high degree of risk.

The second item is Discretionary Authority. Giving your investment professional discretionary authority allows him or her to trade in your account without talking with you. In other words, you give up control of your account. Discretionary authority must be given in writing and withdrawn in writing.

Do not make the decision to authorize discretionary authority until you have given the matter careful consideration. When you give up control of your account you can open yourself to serious problems. Discretionary authority should only be given in very special situations.

The Rules Your Broker Must Follow

While the vast majority of investment professionals are never accused of fraud or abuse, there are investment professionals who engage in misconduct. Here are the major areas you should consider when reviewing the transactions you have with your investment professional.

Brokers must follow what is called the "know your customer" rule. It requires them to make certain that the investments they recommend to you "match" your financial goals and the amount of risk appropriate for you. These are set forth when you filled out your New Account Form. Your broker cannot recommend an investment that is unsuitable for you.

Your broker is required by law to get your permission prior to trading in your account. Unless you have given him or her discretion over your account, trades carried out with your permission are unauthorized. Unauthorized trading is illegal and should not be tolerated.

Your broker is obligated to be truthful - and complete - in presenting investment opportunities to you. An example of what regulators refer to as a misrepresentation is if your broker tells you that investing in a new issue of stock is as "safe as a CD."

The vast majority of investment professionals earn commissions when they buy and sell investments on behalf of their clients. If your broker trades excessively in your account in order to benefit him or her, instead of you and your account, you could have a valid claim against that broker for churning.

One of the most devastating situations an investor can encounter is actual theft by a broker or financial professional.

If you feel uncomfortable with your brokerage house or investment professional, or have reason to feel that you are being pressured in any way, don't feel guilty about switching your account to another representative or firm. Remember, it is your financial future that is at stake - not theirs.

Monitoring Your Account

Review and keep all of your investment records.

From the very beginning of your investing program, keep accurate and complete records. Start a file where you keep your new account form, all correspondence, account statements, and other materials that pertain to your accounts. It is also a good idea to keep a diary of all conversations with your investment professional, especially phone calls. Note the date, place, and subject of the meeting or phone call. If you ever have a dispute with your investment professional, you will have a complete set of records documenting your side of the story.

Your account statements are an important key to controlling your investments.

Check over your account statements carefully as soon as you receive them. Familiarize yourself with the format, terms, and codes used by your investment professional. Review the account activity section to confirm that it contains only those transactions you have authorized. Check the section of your statement that reflects any change or fees debited to the account. If there is ever any information in your account statement you don't understand or agree with, contact your investment professional immediately and get an explanation. If your investment professional can't or won't explain it to your satisfaction, contact the branch office manager.

Follow up when you get a "happy letter."

These are letters from the brokerage firm asking if you have any concerns about your account. The letter may even vaguely indicate that certain circumstances led the firm to write to you. For example, the letter may note that you have an unusually high number of trades over a short period of time. Firms send out these letters when they detect unusual (and possibly troublesome) activity in an account. Follow up by contacting the firm's compliance officer and ask him or her to explain any problems indicated in the letter.

Tips on Understanding Mutual Funds

Mutual Funds, including those sold at banks, are very different from fixed-rate investments, such as CDs. The purchaser of a CD is guaranteed a specific rate of return by a certain date. In contrast, mutual fund prices can go up or down every day and you could lose your principal. Mutual funds (including money market mutual funds) sold by banks are not insured by the federal government. Money market mutual funds should not be confused with interest bearing "money market accounts" which are bank deposits insured by the FDIC. Advertising and brochures can sometimes blur the line between a bank's insured and its uninsured products. Make sure you are clear on which type of "Money Market" you are considering.

Always comparison-shop for mutual funds. Look "under the hood" of any mutual fund you are considering purchasing. Read and understand the fund's prospectus. If you ask, a "Statement of Additional Information" will also be provided.

Ask for clarification of unfamiliar terms and abbreviations. An investment professional who is unwilling to take the time to answer your questions is someone you probably do not want to entrust with you investment future.

Make sure that you know all fees and charges associated with your mutual fund. There are front-end loads where you are charged a percentage fee when you purchase the fund. There are back-end loads where you are charged a percentage fee when you sell your fund. There are no-load funds which do not charge a fee when you buy or sell, but do charge a management fee.

Be aware of "breakpoint selling". Most mutual funds reduce the sales charge, or load, after a certain dollar amount is invested or shares of the fund are purchased. The point at which the sales charge reduction takes place is called the "breakpoint." Ask your investment professional what the breakpoint is on the fund you are considering. Be sure to read your prospectus. This information is found under the heading "Sales Charge."

Some brokerage firms offer mutual funds and other investments that are sponsored by the firms themselves. These are called "Proprietary Products". These in-house funds are the property of the issuing firm itself and may not be sold by other firms or transferred into accounts at other firms. Often these funds will carry a higher sales charge than other "outside" mutual funds. These funds may be recognized by their name. They will usually incorporate the name of the firm into the name of the fund. An example would be "XYZ Brokerage Global Income Fund". It is important to ask your investment professional to be specific as to why a proprietary product is being recommended over an outside fund with the same investment philosophy or performance history. Ask for information on a variety of funds, both proprietary and non-proprietary, that meet your investment objectives before making a decision.

Main types of mutual funds

Stock Funds

Stock funds typically offer the highest returns, but also involve more risk than money market or bond funds. Stock funds vary in purpose as well. Some stock funds focus their portfolio purchases in a particular industry segment, such as technology or health care, or the portfolio is designed to generate a particular financial outcome, such as growth or income.

Bond Funds

Bond funds may have higher risks than money market funds, but also seek to pay higher yields. There are many different types of bonds, so funds of this type can vary dramatically in both risks and rewards. Typically bond funds are suitable for those seeking income and preservation of capital. Have your broker explain the inverse relation of bonds to the interest rates because this makes a big difference should you need to cash out your bonds.

Money Market Funds

Compared to other mutual funds, money market funds have relatively low risks. Money market funds are limited by law to high quality, short-term investments. The money market fund pays a fluctuating interest rate on your funds. This vehicle looks much like a checking account, but it's an investment in a pool of securities, and like all investments, losses are possible.

If You Have a Problem with Your Investment Professional

The vast majority of investment professionals are never accused of dishonesty or fraud. However, if the reason you lose money is because of fraud or abuse at the hands of an investment professional, you may be able to recover the resulting losses.

If you suspect that there may be a problem with the way your investment professional has handled your money, there are steps you can take.

First, contact your broker and explain you view of the problem. Spell out what resolution you expect within a specific period of time. Whether the communication with your broker is in person or over the telephone, follow up in writing. Record in your investment notebook all your conversations, including date, time, and subject, with your broker. Keep copies of all correspondence. See Sample Letter to broker.

If the situation has not been corrected in the specified time, contact the broker's branch office manager. Again, keep your notebook up to date, keep copies of all correspondence, and follow up in writing. See Sample Letter to branch office manager.

If you do not receive a satisfactory resolution at this stage, contact the compliance division of the brokerage firm.

If you have trouble getting a satisfactory resolution to the problem, you can send a copy of your letter to the compliance division of the Washington State Department of Financial Institutions Securities Division. We may be able to help by intervening on your behalf.

Don't wait to act! Federal and State laws limit the amount of time you have to take action against an investment professional. Time could run out, making it impossible for you to take steps to recover your loses.

Arbitration

Most new account forms include an "arbitration clause" that requires arbitration if you have a dispute over your rights or liabilities under the agreement. You don't have to sign the arbitration agreement. You can have the arbitration agreement removed from your new account form. If a problem should require, you may elect to go to arbitration as a faster and less expensive method of resolving the conflict.

Arbitration is a process of dispute resolution in which a neutral third person(s) - the arbitrator(s) makes a decision after a hearing at which both parties have an opportunity to present their case. The Financial Industry Regulatory Authority (FINRA) offers the largest arbitration forum in the securities industry, but there are several other arbitration forums available to investors.

Arbitration is not part of the court system, and may be a faster and less-expensive alternative to filing a lawsuit. Because arbitration is binding and is subject to review by a court on a very limited basis, an investor should seek legal advice before agreeing to arbitration.

Filing an Arbitration

The arbitration process begins when you file a claim and pay a filing fee with an arbitration service. Among the documents you'll be asked to complete is a statement of claim that sets forth the nature of the dispute, the amount to the claim involved, and the damages that you are seeking.

Your statement of claim should be focused and 100 percent accurate. Exaggerated claims or inaccuracies can destroy your credibility and any chance of recovery. The damages you seek should be reasonable and based on the actual losses attributable to the broker misconduct.

Investors are not required to be represented by legal counsel in arbitration. However, those who are unfamiliar with securities laws and the process of arbitration often choose to hire an attorney to represent them. Don't be misled into thinking arbitration is informal, like small claims court. Brokerage firms will always be represented by attorneys.

If you intend to seek legal representation, it is important that you find an attorney familiar with securities law and how investor arbitration works. Be sure to do your homework by thoroughly checking out attorneys who are unknown to you. Determine the potential cost of legal help and the fee options available to you. Your state or local bar association may be able to assist you in finding a qualified lawyer.

Inside the Arbitration Process

When you agree to arbitration, you agree to accept the outcome of the arbitration. For this reason, it is important that you fully understand how the arbitration process works.

The methods of selecting arbitrators vary among organizations, but most investor arbitration panels consist of three members: a chairperson, one panelist from outside the securities industry, and one from within the industry. There are instances where there will only be one arbitrator, however.

Prior to your hearing you will be given an opportunity to object to potential arbitrators if there is a legitimate reason for doing so.

Once you have filed the necessary documents and fees, you (the claimant) will be notified of any requests by the respondent (the broker/brokerage firm) for additional information. It is important that you respond in a timely manner to these requests.

You will be informed of the proposed date, place, and time of the hearing. Arbitration hearings are not conducted in courtrooms, but in conference rooms or hotel meeting facilities.

The hearing, while more informal than a courtroom proceeding, will follow guidelines for the presentation of evidence and testimony, rebuttal, opening statements, and closing arguments. The arbitrators will make a decision based on the testimony and supporting evidence you and the respondent submit.

At the end of the hearing, all parties to the claim will be excused while the arbitrators discuss their findings. You will be notified by mail of the decision, normally within 30 days. The decision will not give a reason; it will merely state whether or not your claim has resulted in an award of damages.

If the decision is in your favor, the notice you will receive will specify the amount awarded and the terms of payment. The respondent will be required to pay your claim within a specific period of time, in most cases within 30 days of the award. Awards not paid within the specified time frame will bear interest charges.

There are four organizations that conduct most securities arbitration hearings. They are:

FINRA
Arbitration Department
33 Whitehall Street
New York City, NY 10004
212-480-4881

American Arbitration Association
140 W 51st Street, 9th Floor
New York City, NY 10020
212-484-4000

Municipal Securities Rulemaking Board
1818 N Street, NW Suite 800
Washington, DC 20036
202-223-9347

New York Stock Exchange, Inc.
20 Broad Street
New York City, NY 10005
212-656-2772

How to Avoid Scams & Frauds

Many people think of fraud as "a bad deal", "being ripped off", or "not getting my money's worth". Many victims of financial crimes and fraud blame themselves for not seeing through the scam. We use the terms con artists, con men, scammers, etc. but they are crooks. They are criminals and that is what we should call them. They steal our money. They are not nice men or women just trying to make an honest living. They are criminals trying to deprive us of the money that we have worked hard to earn and save. They destroy lives.

These criminals like to prey on the naive, inexperienced investor. However, any investor can fall victim. Any investor can succumb when the product is packaged attractively enough.

Here are 10 Self-Defense Tips

Don't be a courtesy victim. Con artists will not hesitate to exploit the good manners of the potential victim. Remember that a stranger who calls and asks for your money is to be regarded with utmost caution and skepticism. You are under absolutely no obligation to stay on the phone with a stranger who wants your money. It is not impolite to say you are not interested and hang up.

Don't be rushed - check it out. Say no to any salesperson that pressures you to make an immediate decision. If they don't have the time to explain the investment to your regular investment professional, or other party, or if they ask you "Can't you make your own investment decisions?" Say NO! You have the right, and responsibility, to check out the salesperson, firm, and the investment opportunity itself. Almost all investment opportunities must be registered with the Securities Division. Extensive background information on investment professionals and firms is available from us.

Before you even consider investing, get the prospectus, review it carefully, and make sure you understand all the risks involved. But remember, even written material sent from the promoter can be fraudulent or misleading.

Always stay in charge of your money. Do not be taken in by anyone who wants your money and assures that he or she is a professional and can handle everything. Beware of any financial professional who suggests putting your money into something you don't understand. And never let yourself be talked into leaving everything in his or her hands. Always watch over and protect your nest egg. Never trust anyone who wants you to turn over your money to them and then sit back and wait for results. If you understand little about the world of investments, take the time to educate yourself. Constant vigilance is a necessary part of being an investor.

Never judge a person's integrity by how they look or sound. All too many investors who are wiped out by con artists later explain that the swindler "looked and/or sounded so professional". Successful con artists sound extremely professional and have the ability to make even the flimsiest investment deal sound as safe as putting money in the bank. Remember that the sincerity in a voice, especially on the phone, has no bearing on the soundness of an investment opportunity. Always do the necessary homework.

Watch out for salespersons that prey on your fears. Con artists know that many investors, particularly older investors, worry that they will either outlive their savings, or see all of their financial resources vanish overnight as the result of a catastrophic event. It is quite common for swindlers and abusive salespeople to pitch their schemes as a way to build up life savings to the point where such fears are no longer necessary. Remember that fear, and greed, can cloud your good judgment and leave you in a much worse financial posture. An investment that is right for you will make sense because you understand it and feel comfortable with the degree of risk involved. High return almost always means high risk.

Exercise particular caution if you have limited or no experience handling money. Ask a con artist to describe his ideal victim and you are likely to hear - elderly widow or widower. Many people now in their retirement years have limited knowledge about handling money. They often relied on their spouses to handle most or all money decisions. Those who have received windfall insurance in the wake of the death of a spouse are prime targets for con artists. People who are on their own for the first time in years should always seek the advice of family members or a disinterested professional before deciding what to do with their money.

Monitor your investments and ask tough questions. Too many investors trust unscrupulous investment professionals and outright con artists to make financial decisions for them. They then compound their error by failing to keep an eye on the progress of the investment. Insist on regular written reports. Check the written information. Look for excessive or unauthorized trading in your funds. Don't be swayed by assurances that such practices are routine or in your best interest. Don't permit a sense of friendship or trust to keep your from demanding this information. If you suspect something is wrong, and you don't get satisfactory answers call the Securities Division and let us help.

Look for trouble retrieving your principal or cashing out profits. If a stockbroker, financial planner, or other individual stalls you when you want to pull out your principal or profits, demand to know why. Since unscrupulous investment promoters have probably pocketed the funds of their victims, they will go to great length to explain why your savings are not available. They may even pressure you to "roll over" non-existent profits into new and even more alluring investments. This will only further delay the fraud being uncovered. If you are not investing in a vehicle with a fixed term, such as a bond, you should be able to receive your funds or profits within a reasonable amount of time.

Don't let embarrassment or fear keep you from reporting investment fraud or abuse. Investors who fail to report that they have been victimized often hesitate out of embarrassment. Older investors fear they will be judged incapable of handling their own affairs and be forced into a nursing home or other facility. Sophisticated investors do not want to admit that a smooth talker took them in. Con artists know all about such sensitivities.

They count on these fears preventing or delaying the time when the authorities will be notified about the scam. It is true that most money lost to investment fraud is rarely recovered beyond pennies on the dollar. There are many cases, however, when investors recognized early that they had been misled and were able to recover some or all of their funds by being a "squeaky wheel". One of the best resources for investors who fear they have been victimized is the Securities Division of the Department of Financial Institutions.

Beware of "reload" scams. Younger investors who are ripped off are fortunate in that they have the opportunity to restore some or all of their losses through new earnings. Older investors are dealing with finite amount of money that is unlikely to be replenished. The resulting panic is well known to con artists. So they have developed schemes to take a "second bite" out of their victims. Faced with a loss of funds, some investors will go along with another scheme (allowing themselves to be reloaded). The con artists promise to make good on the original funds that were lost and possibly even generate new returns beyond those originally promised. This is particularly disastrous for older investors. Though the desire to make up lost financial ground is understandable, all to often the result is loss of whatever savings they have left.

Warning Signs

Legitimate investment professionals encourage you to ask questions and to have as much information as possible. They want you to clearly understand the risks involved. They want you to feel comfortable with the investments you are making.

The con artist want you to believe him or her and not ask questions. All he or she is after is your money.

High Pressure Sales Tactics

Beware of sales pitches, whether from individuals or in ads, that urge you to get in on the ground floor or to act at once. Avoid and pressure to make a quick purchase at a "low, low price"; or "Tomorrow will be too late"; or, "Don't be a fool"; or, "When this becomes public knowledge people will be lined up to take advantage of this golden opportunity". Shady promoters do not want you to take the time to read the small print or talk to others.

Promises of Exorbitant Profits

No honest investment or business is built on quick, astronomical profits. If it sounds to go to be true, it probably is.

Claims of No Risk or Minimal Risk

Return on investment is guaranteed. Assurances that "you can't go wrong" are a sure tip that you are being conned.

Not Answering Questions or Allowing You to ask Questions

The con artist doesn't want you to ask questions. Instead he or she will answer by asking you questions. These are usually questions that will get a positive answer. "You would like to make more money, wouldn't you?" Reputable investment professionals encourage you to ask questions. Con artists don't want you to ask questions.

Evasive Answers and Lack of Communication

A promoter's failure to provide details and a disclosure document or to respond directly to inquiries should diminish your enthusiasm. He or she is probably hiding something.

Claims that the Investment Doesn't Have to be Registered

Most investments available to the general public must be registered with the Washington State Securities Division.

Avoid Any Kind of Investment That is not Described Clearly, in Detail, and Without Hedging

Swindlers often declare that the specifics are "too technical" to describe in layman's terms, or that the information is "classified" or "confidential". Don't buy it. All investments must be accompanied with a prospectus. If it is that complicated, probably you don't want to be involved.

Unprofessional Business like Conduct

Not returning phone calls or answering correspondence. Always getting an answering machine. Not giving out their phone number or physical address. Agreeing to meet you someplace other than their offices. However, there are con artists that have fancy offices, cars, professional receptionists, etc. If they weren't slick, they wouldn't stay in business very long.

Promises of "Inside Information"

Never buy on the basis of rumors or hot tips. And acting on "insider information" is illegal and could land you in lots of trouble. Always rely on fact rather than emotion. If the urge gets to strong, call your broker and ask for a research paper on the security you have in mind.

When hounded on the phone by a promoter, don't be afraid to hang up without explanation. You do not owe the caller anything. This kind of solicitation is an invasion of your privacy. If you have any doubts make no promises or commitments, no matter how tentative. It is far better to wait and lose an opportunity than to take the plunge and lose everything.

Asking questions like those presented above aren't likely to produce honest answers, but the fact that you are asking questions can cause a con artist to discontinue the conversation. However, even if you ask the right questions, experienced con artists can skillfully, abet dishonestly, answer your questions. They can evade answering them by asking you questions like "You don't want to lose out on this tremendous opportunity, do you?"; or, "Wouldn't you like to never have to worry about money again?" Don't let them feed on your fears or greed.

Affinity Fraud

Affinity fraud is when a con artist claims to be a member of the same ethnic, religious, career, or community-based group. Another ploy is to lull members into trusting him or her by first selling to a few prominent members, and paying them the promised high interest, and then pitching the scam to the rest by using the names of those previously sold. These early investors may be wildly enthusiastic about a scheme that may collapse entirely once you've invested.

Once a victim realizes that he or she has been scammed they are reluctant to notify authorities. They will try and resolve the problem within the group. Con artists count on this loyalty.

Just because someone belongs to your church, club, business association or is of the same cultural or ethnic background isn't grounds for blind trust. Never take someone's word as recommendation for an investment. Check it out the same as you would an investment from a stranger or your investment professional. It is extremely unlikely that a great investment opportunity would only be available to a particular religious faith or ethnic background. The promoter may even tell you that because it is only being offered to a particular religious group it doesn't need to be registered. Almost all investment opportunities must be registered including church bonds.

Just remember, the money you invest is yours.

You need to be vigilant.
You need to educate yourself.
You need to understand your financial goals.
You need to understand the risks and returns of your investments.
You need to check if an investment, investment professional, or firm is registered by calling us at 360-902-8760 and 1-877-RING DFI (1-877-746-4334).

When all is said and done, you are ultimately responsible for your investment decisions. You work hard and the future you are investing is yours.