9. Registered High-Interest Promissory Notes Publicly Advertised. Generally, the higher the return promised, the greater the risk to your money. A track record of paying high interest and repaying principal is not an assurance that you will get your money back if the company fails. These notes are not suitable for retirement funds.
10. Sale and Leaseback Contracts. In an attempt to avoid the investor protections of securities laws, some investments are structured to resemble the sale of a piece of equipment or property located at a remote venue. Investors are told that after a given period the equipment or property can be sold back to the seller at the investor's original purchase price and are promised a specific rate of return. Frequently the equipment or property does not exist and the seller lacks the financial capacity to keep the promise of repurchase.
11. Self-Directed Pension Plans. Many types of securities fraud require the victim to remove funds from legitimate investments such as stock brokerage accounts, mutual funds, insurance policies, deferred compensation plans and mutual funds so that they can be invested in a worthless scam. This scam may begin with advice to convert an employer-sponsored pension into a self-directed pension plan. While these plans may serve legitimate investment purposes, all too often they are perverted to the benefit of the scam artist.
12. Unsuitable Recommendations. Just as every investor is different, so too are investments. What may be a suitable investment for one investor may not be right for another. Securities professionals must know their customers' financial situation and refrain from making recommendations of securities that they have reason to believe are unsuitable.
13. Variable Annuities. Variable annuities are tax-deferred investments that typically place mutual funds inside of an insurance wrapper for tax-deferred potential investment growth. While these products are legitimate investments, variable annuities are only suitable for a very small percentage of the investing public and generally are not appropriate for most seniors. The steep penalties for early withdrawals also make them unsuitable for short-term investors. Be especially wary of any broker who wants to sell you a variable annuity to hold inside a 401(k) or IRA, which is already getting tax-deferred growth so the variable annuity's tax-deferred feature only adds cost with no additional benefit.
Recognizing that financial education is a powerful weapon in the fight against investment fraud, NASAA provides tips on how to detect con artists and avoid becoming a victim on its website at www.nasaa.org
