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Who are you going to trust to handle your money?
One of the joys of not having any affiliate connections with financial companies is that it keeps my blood pressure down – there are very few conflicts of interest in my work. I like to think it helps you to trust what I say, unbiased and open, in an industry solely lacking any trustworthy products, characters or companies.
It’s so important to think about who you are going to trust to handle your money. Many of us like to think the best of people and companies, that they have our best interests at heart. It is painful to discover both dishonesty and incompetence out there.
Still, it’s usually good to learn this lesson early, so you are tougher and savvier in the future when you can’t afford to make mistakes.
This lesson was rammed home this morning watching this excellent video about (alleged) Dubai scammer Com Mirza. I strongly recommend you watch it (20 minutes), as someone taken in by him breaks down how major con artists suck you in. Guess what, it’s not that different to how the most charismatic (and thus most dangerous) commission-driven financial advisors work!
It’s starting to feel personal, because I have met both Com and Katie the (alleged) Dubai currency/car/property scammer. While I didn’t lose any money to either, it makes you realise we are all exposed and, perhaps even worse, so are our partners, relatives and friends. They may not even tell you, out of embarrassment, fear or brainwashing.
It really helps to be charismatic and credible as a scammer. I remember meeting a woman masquerading as an ambassador in Dubai, and her weirdness ensured nobody I knew would fall for it. As the above video shows, the perfect scammer is friendly, patient, outwardly successful and generous.
Having infiltrated your network of friends or colleagues, they come recommended. If they’re any good, they won’t ask for anything initially. Then one day, there’s an offer, it’s limited to people in the know, it’s a great deal, it’s there if you want to participate.
Looking back, you probably did feel something was slightly off the first time you met them. 1 red flag amongst 99 green ones. But you ignore it, because everything else seems ok and everyone around you thinks this person is great. By the way, the same goes for relationships! That one thing that seems a bit off when you are dating can signal huge problems down the line.
So if someone charming is offering you an investment deal, I recommend you don’t take it. You can thank me later. Now, if a financial advisor has befriended you, taken the time to come round to your house, play golf, explained for free how investment works, put a wonderful 25-year plan on the table for you to sign up to… just stop and try to understand their motives. Do a google search. Talk to people beyond the circle that led to your paths crossing in the first place. Be cynical.
If your partner runs the finances, well you have a right to grill them, and frankly you shouldn’t let them run them alone. It’s only your low self esteem and alleged lack of time that is stopping you getting involved.
Make sure they are not being duped. And make sure they are not duping you with their own charisma (they persuaded you into a relationship, right?) that they know what they are doing. Comments like “you wouldn’t understand” or “you are too risk averse, trust me” should make you dig your heels in further.
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Get rich quick scams
The Exential scam in Dubai was a classic. You invest $25,000 and you make 10% per month through done-for-you FX trading. Anything offering more than 10% per year is a scam or highly risky, so don’t touch it. So for the first few months, you watch money ping into your account (not your actual bank account, of course) and you are so impressed you tell evvvveryone in the cockpit and the cabin down the back.
Like all ponzi schemes, these collapse when there aren’t enough newbies giving money to generate the returns for the early adopters. And you end up with nothing.
The same goes for FX or bitcoin trading platforms, where everything is so simple it is done for you. If it was that simple, the owners would be keeping quiet and raking in the money for themselves. No, they are making their profits from selling access to platforms, which won’t make you anything. Stay well away.
Sending money abroad is costly and can be tedious. Selling your car is definitely tedious. So when someone comes along to offer you a great rate “because they happen to have some Euros” or “urgently need a car”, you should be suspicious.
Banks and exchange houses are slow, expensive and annoying to deal with most of the time. But one of the reasons they are like this is because the government regulator ties them down with so many rules to stick to and forms to fill in. Why? To reduce the risk of you getting scammed.
When someone outside the system then comes along to offer you a deal, you are taking a huge risk. It’s not worth it.
Your bank phones you to say you need to change your password. Your solicitor emails you to say they have changed the account to which you should send the money for your house purchase (this scam is so painful I can barely think about it).
You use your debit card (the key to your current account) in the garage/restaurant/online to make purchases, even worse if you let the guy disappear round the corner with your card.
Don’t be sloppy, because you will regret it. Take 10 seconds to think – does this feel right?
Companies that are new, small or subject to limited regulation (based anywhere with ‘Island’ in the name) can easily lose your money due to corruption or incompetence. Large institutions like banks, brokers and fund managers are usually more regulated.
Remember some scandals haven’t surfaced yet, and others have been brushed under the carpet. I don’t know how the major financial advisors are still operating after putting customers’ money in dodgy funds that blew up spectacularly.
For me, the question to ask is this: what risks am I actually taking? Am I protected against any of these risks? Some examples:
1. You invest your money in a small bank in your home country, because they are offering a good rate (or worse, because your parents use them). Your money is actually on the bank’s balance sheet and when they run out of cash, it gets locked up or evaporates.
So ask – is this bank stable? Why are they offering such a good rate? And does the government protect any of my money if the bank blows up?
2. You transfer your life savings to your home country using an exchange house. The exchange house goes bankrupt or (suspiciously) holds on to your money for weeks claiming technical difficulties.
Ask yourself: is anyone else warning about this company? Is my money protected in any way while it is outside my bank accounts? Do I need to send all this money in one go? In the case of UAE Exchange, the UAE Central Bank has stepped in and promised to restore people’s cash. It probably didn’t have to, so people are lucky.
3. Your financial advisor recommends you invest in the money in your savings plan via an exciting fund that owns student accommodation, recycling machinery or the proceeds from unfinished court cases.
Ask yourself: why would I do this when I can invest in VWRA for 0.2% (but then you read my blog, so you would ask that)? Is my money locked in? Who can I turn to if it goes wrong – the advisor, the advisor’s regulator, the savings plan provider, the savings plan provider’s regulator, the fund manager, the fund manager’s regulator? I guess that last question shows why you shouldn’t touch such plans at all.
4. You open a broker platform account so you can buy ETFs. The broker goes bust – where is your money?
Ask yourself: how am I protected if my broker runs into problems or is fraudulent? The reason I like Interactive Brokers is because your account is covered by the SIPC for $500k-$1million. Other brokers have a custodian to stop brokers accessing your funds directly.
I know we are all busy but this is your hard earned cash. Take the time to ask questions and do the research. What are the risks of losing money? How are you protected? Do the people making recommendations have the right incentives? If your gut is uncomfortable, listen. There is NO hurry to do anything with your money.
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