2013’s The Wolf of Wall Street – Martin Scorsese’s award-winning look at the industry’s underbelly – hasn’t exactly given stockbrokers a PR boost. It hasn’t exactly been generous to financial advisors, either. But Jordan Belfort, the infamous brokerage head who inspired the story, may have one more zinger to offer wealth professionals, especially independents working outside the big firms. In a tip sheet for investors designed to help them steer clear of fraudulent players, he lays out sound advice that may, inadvertently, paint “legit” players with the same brush regulators rightly used to tar and feather him.
Belfort’s top tips for spotting fraudsters
According to Belfort, no-name brokerage firm or financial advisors not affiliated with a major company can be a risky bet. “I’m not saying there aren’t crooks in big companies,” he says, “but to go with someone on the basis of a phone call or someone who’s operating from a business that’s very recent, you’re taking a huge risk.”
One or two business referrals provided by the advisor simply aren’t enough. Belfort suggests advisors should be subjected to character references as well.
Well-defined track records aren’t a mystery, says Belfort. By contrast, “if someone’s got a scheme or an investment model that doesn’t quite make sense,” he says, it falls into the you-can’t-quite-prove-it-buteveryone’s-doing-well-with-it category, and “it’s bull.”
If an advisor is asking a client to fudge the truth, it’s not inconceiveable that he or she will also be doing the same, cautions Belfort, now a sought-after public speaker.
“When it comes to money, there’s no in-between,” he says. “Either you’re lily white, or you’re not. If you cross the line once, you get a taste for it.”
That observation comes attached with a cautionary note for advisors. “I didn’t start out ethically bankrupt,” says Belfort. “I sold my soul a little bit at a time. I crossed over to the dark side through a series of tiny imperceptible steps.”
The In Crowd
Exclusivity sells, and investors are often swayed by the promise that they’ll be one of only a few with access to an advisor’s services.
“Bernie Madoff relied on the oldest hustle of all, which is: ‘My club is so exclusive - you want to be a member,’” says Belfort. “You wanted to be in Bernie’s club and if you weren’t in Bernie’s club, you were ‘less than.’
People clamoured to give their money to Bernie Madoff. If you asked questions, he said: ‘No.’”