Tips for Avoiding Fraud and Risk for Canadian Investors

 Avoiding Fraud and Risk

New reports suggest investment related fraud continues to grow on a national and international level. What are the risks that Canadian investors face and how can they avoid becoming victims, all while maximizing, their portfolio’s potential?

A host of fresh fraud allegations, investigations and data shows that fraud and similar issues are apparently growing, rather than being eradicated. The recent news of a highly praised Canadian home renovator with his own TV show going bankrupt and taking hundreds of thousands of dollars of local property owners’ money with him has shaken the confidence of many.

The Globe and Mail and Ontario Securities Commission reports Canadian based TD Bank was just found to have been overcharging clients for 14 years. Over 10,000 accounts have reportedly been affected with erroneous charges exceeding $13.5 million. Another fund was just ordered to pay $23.3 million by a BC regulator. On November 13th, 2014, the Edmonton Journal reported that global banks are facing new fines for rigging markets. In the US, the Mortgage Fraud Application Index rose over 3% in 2014. This is on top of lost opportunity costs and subpar investments that simply didn’t perform as promised or expected.

So what can Canadian investors do to avoid being taken advantage of by these traps, and missing out on the best returns?

Due diligence

Individual Canadian investors must do a little home work themselves. Take a few minutes to research the opportunity, companies and professionals involved in any investment and their track record. Those that don’t take a moment to look beyond the glossy hype will unfortunately be met with disappointment. This applies to doing business with the large high-profile names of today as well.

Evaluate the model

How is the investment model weighted? What built-in checks and balances are in place for sponsors and managers to ensure the on-going performance of the investment and to deliver returns for clients?

Understand what you are investing in

While it may not be efficient, necessary or even feasible to fully master every intricacy and nuance of every investment, investors need to have a good handle on what drives performance and what the potential best and worst case scenarios are.

Pace how you invest

Dumping every penny of your savings or retirement fund into a new investment with a new manager is asking for trouble. It also breaks the most basic investment and financial principles. Thankfully, new models such as partnership opportunities for investing in commercial real estate make it easy to test the waters, stay diversified, and scale with confidence as investments and managers prove themselves.

Don’t forget taxes

Investors can’t neglect shielding themselves from unnecessary tax liability either. Don’t allow great returns and gains to be stripped away by taxing authorities out of a failure to choose tax beneficial investments like real estate or keeping good records.

By following the above tips, Canadian investors can make significant strides in reducing liability and securing sustainable positive returns over the long term.