There are all kinds of scams out there. Knowing
where you are investing and how to avoid swindlers are
important for your financial future. Here are 10 warnings
and recommendations to help keep your savings
and investments safe.
Red Flag #1: Variable Annuities
Consumer Reports Money Adviser commented in a
recent "Red Flags" article:
They're sold as a way to achieve financial security -
and they also promise a nice, fat commission for advisers... significant expenses can include surrender charges as high
as 8.5 percent of your investment if you take your money
out early in the holding period.1
Sheryl Garrett, CFP and founder of the Garrett
Planning Network, said in "Ten Scams to Avoid":
If anyone suggests you invest your retirement funds (tax
shelter) or IRAs (tax shelter) in an annuity (another type
of tax shelter), that recommendation is either going to
make him a lot of money, or he doesn't have your best interests
at heart (or both)... The excess annual costs, surrender
penalties and inflexibility never make buying an annuity
contract with your tax sheltered retirement dollars a good
Consumer Reports, Garrett and many others have
advocated for years to steer clear of investments with
commissions and/or high expenses. Also, to place a taxdeferred
entity within another tax-deferred entity
defeats all reason. Please be very careful, docs, of any
investment that involves an insurance product or is
being sold by an insurance company.
Red Flag #2: Exchange-Traded Notes
These are not ETFs! ETFs track a market benchmark
and are quite similar to index mutual funds.
ETNs are unsecured debt obligations that don't pay
interest as bonds do. They also have lack of liquidity.
ETNs aren't backed by assets and don't represent shares.
The Financial Industry Regulatory Authority (FINRA)
warns that ETN prices can deviate sharply from the
value and performance of the indexes they track, which
is different than ETFs.3
Red Flag #3: Non-Traded REITs
(Real Estate Investment Trusts)
These are different than traded REITs in that they
are very hard to sell; there is no public market for them.
Non-traded REITs might tout high dividends, yet that
is often offset with front-end loads of up to 15 percent!
Red Flag #4: IPOs
(Initial Public Offerings)
Facebook was the dud of 2012. Remember its opening
prayer of $40 with grand schemes of moving quickly
to $100? Opening day, May 18, 2012, ended at $38.23.
After three weeks, the stock was selling for $25.87,
working its way down to $17.73 in September 2012. It
never did get back up to $38.23 and as of February 8,
2013, stands at $28.55. Such a deal!
How about Trulia, the online real estate site? It
debuted at $24 on September 20, 2012, falling to
$15.15 on November 9. It is now in the $25 range.
History shows us that very few IPOs hold their
value for the first year.
Red Flag #5: Free Seminars
with Meals Attached
Content, beef-fed dentists are favorite prey for
annuity, commodity partnership and time-share salesmen.
Be sure to get a second opinion from a neutral
third party before “investing” in something presented
with any freebie.
Red Flag #6: Day Trading
Jim Cramer and his gang might be fun to watch on
CNBC, yet any type of market timing is anathema to
your savings. And it looks so easy! Yet there are countless
illustrations of PhD mathematicians and engineers
diving headfirst into trading, followed quickly by an
unremitting plunge. It's a no-win game, docs.
Red Flag #7: Vacation Timeshares
The maintenance, special assessments and taxes are
normally higher than the rental rate at the same resort.
And dare I mention depreciation? It's higher in the first
year than the purchase of a luxury auto. Yes, I know
that you can trade for other resorts whenever you like.
Yet, I'll normally find a better price through AAA or
Kayak for the Grand Hyatt next to your condo without
the trading hassle.
Red Flag #8: Spending Too Much
for Investment Management
Annuity salesmen often hide three to four percent
per year expenses. They will not tell you the truth about
the expenses because they don't know. They do know
their up-front and ongoing commissions. Normally, private
money managers and financial planners will charge
anywhere from 0.75 to one percent per year above fund
expenses. That's a total of one to 2.5 percent for all
expenses. And these people will disclose their fees.
You should not pay more than one percent for
advice, and then for specific tax-reduction assistance.
For those who invest on one's own, total expenses
shouldn't be more than 0.5 percent.
For dentists who don't own practices or those with
limited tax-reduction strategy, there are many new
online investment advisers that offer financial plan
setups in the $200-$250 range and use discount broker
products. LearnVest, NestWise and Plan & Act are
examples. With most, you will be assigned a real adviser
who provides a real financial plan and full financial
planning. You may execute and monitor the plan on
your own, or have it managed and rebalanced by the investment adviser. Fees to manage your account are
one percent or less.
Wealthfront (WealthFront.com) does not have full
financial planning services - only investment management
- yet its fee is only 0.25 percent of assets. And it
has a free do-it-yourself online software tool to design
Discount brokers, such as Schwab, Fidelity and
Vanguard will also offer a detailed financial plan for
fees less than $1,000 and often free-of-charge with
Or, as indicated in the savings/investment article,
simply use lazy portfolios or Vanguard target-date funds.
For dentists who own a practice who wish to
employ more sophisticated tax-reduction strategies, a
dentist-specific management team is recommended.
Thomas Wiring Doll in the Bay Area at 877-939-2500
or McGill and Hill in Charlotte at 877-306-9780
might be appropriate. Compare these to tax strategies
and fees from a discount broker.
Confer with a tax attorney. Find listings at the
National Association of Tax Professionals (www.natptax.com).
The bottom line is online forces are quickly overrunning
financial advisers, much like travel agents in
the past. A dentist might need to spend $5,000+ for a
comprehensive financial plan with tax strategies and
estate planning. Yet many might do as well with a
Vanguard small business investing plan or an online
adviser, as mentioned. Do your due diligence and use
common sense in evaluating which type or whether to
use an adviser.
Red Flag #9: College Investment Advisers
"This policy will lower your college costs" is a common
come-on. This new scam, involving selling insurance
products for college funding, received definitive
treatment in January 2013 Money Magazine.4 College
Funding Advisers, Certified College Planning
Specialists and other fancy titles hide the fact that 90
percent of these con artists are insurance agents with
flimsy college-planning credentials.
The game is to convince parents that they can
"hide" investments from financial aid offices. This
"repositioning" rarely gathers an increase in aid, yet
builds the agent's funding for his children!
For professional college investing help, go to
SavingforCollege.com. The same URL offers a myriad
of ways to save, including 529-plan information for
For actual college admission assistance, consultants
from the National Association for College Admissions
Counseling (www.nacacnet.org), the Independent Education
Consultants Association (www.iecaonline.org) or
the Association of Independent Certified Education
Planners (www.aicep.org) assist in finding affordable
schools. These professional consultants charge about
$135 per hour.
Red Flag #10: Insurances You Don't Need
Insurances you don't need include:
Cancer Insurance - Instead, have a proper amount
of term life insurance. Cancer insurance is costly and
your chances of receiving a benefit are low.
Accidental Death and Dismemberment - This is a
waste of money. Have proper life insurance.
Extended Warrantees on Electronics - Items usually
have one or two years of automatic coverage.
Commissions are huge on these warrantees. Only two
percent of extended warrantees are utilized.
Pet Insurance - This is another profit center for the
insurers. Instead, budget for your pets.
Spend your money on the insurance you do need.
[Editor's Note: For insurance advice refer to Dentaltown
Magazine "DIY Finance, Part V: Insurance" by Douglas
- "Red Flags for Investors," Consumer Reports Money Advisor, Nov. 2012, 9, 11, pages 1,4.
- Sheryl Garrett CFP, Personal Financial Workbook for Dummies, Wiley Publishing, Inc., Hoboken, NJ, 2008, 263.
- "Red Flags for Investors," page 4.
- Kim Clark, "College Aid; Don't Take the Bait," Money Magazine, January, 2013, pages 139-145.