We've all heard of voodoo economics, but voodoo investing?
Noted Washington, D.C.-area radio personality and former financial advisor Dawn Bennett was convicted earlier this week of fraud, found to have bilked 46 listeners, advisory clients and friends who trusted her out of some $20 million in a Ponzi scheme. Prosecutors say she used voodoo in an otherworldly attempt to escape justice.
Founder and CEO of Bennett Group Financial Services (now a defunct firm) and the host of weekly radio program "Financial Myth Busting with Dawn Bennett," Bennett reportedly used investor money to pay Hindu priests in India for ceremonies to ward off investigators looking into her business practices. Stranger still, she wove voodoo spells around jars of beef tongue, labeled with Securities and Exchange Commission lawyers' names, that she stored in a freezer at home in hopes of keeping the feds quiet — apparently to no avail.
Bennett, 56, had promised a 15 percent return on investments in her new luxury sportswear company but actually used the money to fund an extravagant lifestyle, say government investigators. If it sounded too good to be true, that's because it was.
Unfortunately, otherwise intelligent, even savvy, investors often fall victim to financial scammers, said certified financial planner Douglas Boneparth, founder and president of Bone Fide Wealth in New York. Just look at the unfortunate, and often well-heeled, clientele of convicted fraudster Bernard Madoff.
"People, fundamentally, are willing to throw out the window principal disciplines in investing — diversification, risk and return ... that you have to abide by to keep yourself out of trouble," he said. "People are constantly ... kicking them to the curb over the allure of attractive returns."
Granted, the Bennett case is an extreme example, in terms of both the returns promised and the lengths gone to cover up misdeeds. But financial advice and investment management, like any industry, is prone to more mundane types of professional mischief, and even if you're not chasing pipe-dream profits, you can still be victimized.
"There are bad actors throughout any industry … and they're going to unfortunately leverage their relationships with people and take advantage," said Barry Glassman, CFP and founder and president of Glassman Wealth Services. "What you want to avoid are the easier, obvious ones. You want to enter with caution."
So how is a prospective client to proceed when vetting a potential financial advisor? How to ensure your advisor is on the up and up — but not way out there?