Stephen David and his wife Linda sold a business and had $1 million from the sale to carry them through retirement and pay for college for their youngest child. They put their $1 million plus $500,000 of savings to work with investment broker Charles Moni, hoping to get about $150,000 a year out of their account. That would have meant they needed a 10% a year return on their money, yet they wanted to be conservative in their investments.
The investment account started losing money right away, and the Davises complained to the broker, who told them they'd regain their value. They took $625,000 out of their account and put it in a savings account for safekeeping. The broker put the remaining money in one stock: Rigel Pharmaceuticals.
In one day, the couple lost $450,000 in this stock. The couple has sued the broker, claiming that he put them in bad investments and traded excessively to net himself almost $200,000 in fees. Their losses total $680,000 plus the money they would have made on that balance if they had it to invest.
Yikes! Buyer beware... working with an investment advisor can be risky business. You really need to check out who you're working with. But most importantly, you need to be actively involved in the management of your money. You can't let an advisor just run off and do whatever he pleases with your money.
Give your broker very clear guidelines about what risks you're willing to take. When in doubt, be conservative. If a strategy or an investment sounds too risky and makes you uncomfortable, say no. You often can't ever recover from a devastating loss like this, especially if you're retirement age. Your number one concern should be protecting your money, and your investment advisor must be forced to respect that and play by your rules.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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