Choosing a financial advisor

Or not. In my little town, the business community is buzzing over news that a well-known economist, college professor and prognosticator for the Chamber of Commerce was managing other people's money for some 21 years without the required license. Well, that's not what got people talking. It seems as though he was claiming returns of up to 40% on the investment pools he ran, and while he claimed that the investment pools he was running had assets of $134 million, a routine SEC audit found that (1) the returns were a lie, (2) he falsified statements to investors - and the SEC, and (3) much of the money invested with him is gone. His properties have been seized, the private civil actions are starting, and the FBI has opened a criminal investigation. Oh - and the star of the show, one Al Parish, is in a local psychiatric hospital with "amnesia".

In retrospect, it's a classic con game. Parish was an assistant professor at Charleston Southern University, a Baptist school that requires faculty to affirm there adherence in certain religious and moral prinicples. He was the economist for the Charleston Metro Chamber of Commerce, producing quarterly economic reports. He was a very entertaining speaker, and frequently spoke to all sorts of groups around town. He was colorful in dress and manner, well liked and respected. So, of course people trusted him!

The lesson for us all?

First, the disclaimer: nothing I write here - or ever write, here or anywhere else on this planet - is intended to be investment advice. I don't manage money, I'm not licensed to manage money, so I don't do it.

As with any professional, asking respected colleagues for references is a good starting point. Your accountant and attorney are also people to ask for references and to vett the names that you have collected. People who seem to be earning high returns or "playing" in the stock market or other investments are the ones to steer clear of - maybe they are getting such returns for now, but probably not over the longer term. Cull the list to a small group - 3-5 - and interview each of them. Check independently that the person is licensed by the state and, as needed, by the SEC. As for where your money actually goes: if you want to invest in exotic investments, such as fountain pens and art (as Mr. Parish did), be my guest, but don't be surprised if the promised or "projected" growth in value doesn't materialize.

Second major rule: If you don't understand the investment, don't do it.

Third; Complicated transactions to defer income and avoid taxes should immediately send up all kinds of red flags. People who focus on saving taxes will, at times, go to great lengths, and could be ensnaring you in a tax shelter scheme that is challenged by the IRS? Even KPMG, one of the remaining Big 4 CPA firms, has narrowly skirted a criminal indictment over a tax scheme.

Each year, at a minium, review your investment plan with the financial advisor and your CPA. This is not gambling, this is investing, and their is a big difference. Since most of these monies are intended for your retirement, plan accordingly and monitor what is happening. You are not going to be the top earner all the top, if at all, you're not going to beat the professionals, who have more information and can move faster than you can, and you are not going to sell at the very top and buy at the very bottom.

Tax filings of all sort are due next week beginning on April 16. If you haven;t already done so, get on your accountants calender for a busines review in May or June. This meeting will wrap up 2006, serve as a check point for 2007, and it will be time to start planning for 2008!