Each year investors lose billions to fraudulent activity. Today on the podcast we talk about why and how people fall prey and what steps you can take to stay safe.
My guest today is William M. Francavilla.
Bill is a Certified Financial Planner with more than 30 years of experience in the financial services profession. He has worked as an investment advisor and professional trainer for several Fortune 500 companies, and retired from Legg Mason as senior vice president and director of corporate wealth management.
Bill’s new book is The Madoffs Among Us: Combat the Scammers, Con Artists, and Thieves Who Are Plotting to Steal Your Money.
Within our conversation today we talk about how to easily identify the people who perpetrate these crimes and avoid their deceitful practices. We also cover why it is that smart people fall for these cons.
Bill and I chat about some of the most common scams today and how you can avoid becoming a victim.
Here’s my conversation with Bill Francavilla, author of The Madoffs Among Us, in episode 319 of Informed Choice Radio.
Martin: Welcome back to Informed Choice Radio. I’m delighted to welcome today Bill Francavilla, who’s a certified financial planner and author of a new book called The Madoffs Among Us. Bill, could you start by telling us just a bit about you and about your background I guess as a certified financial planner?
Bill: Thank you Martin, and thank you so much for the invitation. I’m looking forward to speaking with you as well as your audience. I’ve been in the financial services business for over 30 years. I did complete my certified financial planning designation back in the year 2000. I retired from the business as the Director of Wealth Management for a New York Stock Exchange company, one that promoted financial services. I had a pretty good footprint here in the States.
It’s been a wonderful ride. It’s a wonderful profession when it’s done the right way Martin, when it’s done the right way and you can truly provide substantive assistance to the people who have problems and need solutions. So I’ve had a nice ride. Thank you for asking.
Martin: That’s good to hear. What was the catalyst then for writing your book, The Madoffs Among Us?
Bill: After 30 plus years, I came to the very distinct understanding that the overwhelming majority of people who are engaged in financial services do the right thing. They’re pretty smart people. If they are focused on your needs, the client’s needs, they are going to provide you with great assistance. But, Martin, there’s always the peripheral person. There’s always the person who’s trying to capture an advantage for themselves, and not specifically for the clients.
I wrote the book because I wanted to forewarn people that it’s not ubiquitous, it’s not around every corner, but people are one introduction away from being in the company of one of those peripheral people. I want to make certain that your listeners, that the folks who are reading my book fully comprehend the damages that can take place as a result of that introduction or that relationship with that person, and some of the danger signs, some of the warning signs that we might alert ourselves to one of these charming personalities that is intended to benefit himself or herself and not you.
Martin: Obviously the title of your book makes reference to the infamous Bernie Madoff, but for anyone that’s not aware of him and what he did, could you give us a sort of part of history there?
Bill: Absolutely. Bernie Madoff made away with over $65 billion. He was a legitimate business person at first and then it caught up to him and he started capturing a lot of assets. I mean $65 billion, that’s a whole lot of money. He built his business on his reputation, and his reputation was if you can get an account with Bernie Madoff, if he will allow you to invest your money in his funds and his management system, you will have consistent returns and you will not be disappointed.
So he had a great deal of panache, if you will. He had a great deal of charisma. He was called charming, which is an operative among so many of these Ponzi schemers. One day he knew he couldn’t go on because he was paying people back their money with new money that was being filtered into his funds. Back a dozen years ago, when we had a fallout in the markets and the real estate market, there was great demand for people to retrieve their funds.
They wanted out, and he couldn’t pay them, so he went to his two sons and wife, they had a family meeting, and he said, “The whole thing is a scheme. The money is not real. It’s all been fabricated. I have been actually manufacturing client statements and lying to them for the past 20 years. We have nothing.” He’s in jail presently, as well he should be. He will be there for the rest of his life. He’s at a federal correctional facility.
But the sad news, Martin, what about the people? What about the folks who invested their retirement funds, their hard-earned dollars? Do you think they’re ever going to get their money back? To date, the Feds here in the United States have been able to retrieve about half of the money. It’s dubious as to whether they will get the rest of it. I doubt it very much. He’s a bad guy.
Martin: Absolutely. The scheme you just described, the Ponzi scheme, where new money is used to pay people returns supposedly, is that the sort of common scam that people are at most risk from, or do you have experience of other scams which are more common?
Bill: You know, that is the one that gets all the news, the Ponzi scheme, if you will. That is less frequent than some of the more common scams that have manifested themselves in today’s society. They take many different forms. The more I researched the topic … Please understand that my background, as you know, is in investments and financial markets, but I continued to do some research about the bad people in the business, but I was led to also report on some of the more prevalent scams, like romance and fake charities and the grandparent scheme and Medicare schemes, healthcare schemes.
Of course investments is where most of the money is, so that’s where so many of these scams will lead. But if I could talk just a little bit about some of the scams here in the States which are heinous. There was one scam, it was perpetrated out of India. They had a boiler room filled with bad people who were making calls over to the States and they were targeting people who are taxpayers, which is virtually everybody.
Here’s the call. “Martin, I’m agent so-and-so with the Internal Revenue Service and I’m calling to tell you that you’re delinquent on your taxes and unless you make immediate reparations I’m going to dispatch the Sheriff’s Department to your home and make an arrest.” There’s a guy over in India, he’s referred to as Shaggy, and Shaggy was arrested, but before he was arrested he was able to steal $300 million, $300 million, and this was only in a matter of several months, so very, very frightening.
But the scammers have one constant, they look for vulnerability and they prey upon emotions. When someone calls and announces that they’re with the Internal Revenue Service here in the United States, we get upset. We’re concerned. Now the truth of the matter is the IRS will never call somebody and threaten them. No, that’s juvenile. It doesn’t happen that way. But people don’t know that and they’re afraid, so they respond, and that’s when they lose money. It’s always vulnerability.
Another scam that is sickening to me is preying on the elderly. Maybe there’s a person who is infirmed or has some cognition issues because of age, maybe they’re widowed and living alone, huge vulnerability. So the bad guys, they prey upon these people. They call and they make them warranty offers and guarantees. They show up at their front door and say, “I notice that your roof needs some help or your driveway needs to be redone. We’re happy to do that for you,” and so on, and they’re charming. Again, that word charming. And, God bless, the older person who is most vulnerable falls for it and loses a tonne of money.
Martin: You mentioned earlier that these scammers are not ubiquitous and are around every corner. How worried should we be? How afraid should we be that we’re going to get ripped off by a scam artist?
Bill: I think we need to be vigilant. I think we have to question. There are three items that I present to my readers. There was a fellow here in the States, his name was Simon Lovell. He has a reputation of being the scam artist of the 20th century. This guy was … He would scan anybody out of anything. Well, they caught him, he went to jail, he came out of prison and he wrote books and he’s done a lot of public speaking, and I think they’re terrific. But he’s quoted as saying something that I think is very profound. He says, “I love it when people tell me they can’t be conned, because in my mind they’re already halfway to being conned.”
Martin, I urge people to look in the mirror and say you know what? I’m a pretty smart person. Martin, you’re a smart guy. Emma is a very smart woman. I think I’m a smart guy myself. I could be scammed. Don’t take yourself too seriously. I could be scammed. Incidentally, here in the US the greatest percentage of people who are scammed are college educated men. There was a new statistic that was brought out just about two weeks ago. The millennials are actually getting scammed at a higher rate than older people. Why? We think we can’t be scammed. We think we’re pretty smart. So that’s number one.
Number two, resist the temptation to make any kind of purchase with emotion. Witness the IRS situation. That’s fear. You know what? We’re going to step away. We’re not going to react. We’re not going to respond. We’re going to investigate. We’re going to include family members. We’re going to maybe Google is this a scam? What’s going on here?
We want to in essence move to number three, and that’s get educated. Number one, recognise the fact that everybody can be scammed, including yourself. Number two, if it sounds too good to be true or if we’re fearful of something, step away. Number three, let’s get educated. Let’s find out is this for real? It just might be. But there’s too many scams out there that we just want to be cognizant of, that’s all.
Martin: You mentioned vulnerability is an important factor, but what about greed? Is it often that people accept something that’s too good to be true because they’re greedy?
Bill: We here in Virginia, where I am, we had a Powerball, that’s the Lotto system, and it was reaching, oh, my goodness, $500 million. When do you think more tickets are purchased, when it’s $1 million or when it’s $500 million? It’s $500 million. And the chances are one is 17 trillion I think I read … Preposterous. It’s not going to happen, I’m sorry folks. But that’s when we buy five and 10 and 20 $2 tickets, because, oh, my goodness, if this really comes across we’re going to be living in high cotton for a good long time. That’s greed. That’s a classic example of greed, so very good point. Greed really does motivate us to act not in our best interests.
Martin: What about the role of financial planners here? How can we find the majority of financial planners which are not going to deceive us and scam us? How can we identify the good ones and how can we identify the ones we should try and avoid?
Bill: Okay, let me reference the three financial advisors that I believe should be avoided. The first is the novice. We all start as freshmen in an industry, as did I. But you know what? We don’t have to work with those folks unless they’re working with a senior advisor and a mentor who is looking over this younger person, this novice in the industry, their trades and how they’re helping people. That’s an exception. But, my goodness, I remember the first year in business. I was dangerous. I knew enough to make a living, but I didn’t know nearly as much as I presently know.
The second person is the person who is highly opinionated, someone who thinks the Dow Jones and the New York Stock Exchange, they’re going to go to $45-50 thousand, you’ve got to be all in. Conversely, the person who is a pessimist and thinks that we’re going to Hades in a hand basket. I want to avoid those people. I want to focus on the advisor who listens to me, to my needs, and presents solutions. I want them to know that I’m a dad of three, that I’m a grandfather of 10, that I live in Virginia and these are my … I want to retire comfortably. I don’t want to relinquish any of my lifestyle. I want them to know how I am. I want them to know that I like small dogs and I don’t enjoy golf and that I like to speak in public. I want them to truly, truly know me.
The third person … First we’ve got the novice, then we’ve got the person who’s highly opinionated, and thirdly, we want to avoid the salesy person, and hopefully we can spot them a mile away. Martin, they might invite us to a nice lunch or a dinner and they have one product to solve all your financial problems. No, no, I’m sorry, that doesn’t work for me.
I don’t want the financial advisor’s agenda to be focused on themselves. I want the agenda to be focused on me, to help me solve my problems. Those are some cautionary items that hopefully our listeners will take to heart and think very carefully.
Martin: So we find this financial advisor who listens, who presents solutions which are good for you. What’s their role in helping to keep you safe from scams? What can they do for you?
Bill: A trusted financial advisor really should know everything about your financial well-being. They should know where your savings is, how much it is. They should know what kind of retirement funds you’ve set aside. I want them to know about your risk management and insurance, your legal and estate planning matters. I do want them to dig deeper into your personal life to make sure they understand how you feel about it.
If you have the advantage of that type of financial advisor, hold on to that person. Hold on to that person. I want a person that says you know, if I apply my certified financial planning ratio knowledge, you should have three to six months worth of expenses set aside in a savings account, so that might be, I don’t know, $10 or $20 thousand. But if the investor, if the client doesn’t feel comfortable with less than $30 thousand, that’s their choice. That’s the investor, that’s the client’s choice, so you defer.
The wonderful financial person defers to the expectations and desires of the client. Now we can say, “That’s kind of a lot of cash to have there. Are you sure you’re comfortable with that? You really don’t need it, because you have liquidity in some of these other asset groups.” I get that, but by all means listen to the client.
Martin: Yeah. That’s certainly key to it, isn’t it? You mentioned earlier that smart people often fall for these scams, that we feel that we’re scam-proof somehow, and of course we’re not. So are there more steps that we can take to make ourselves scam-proof if we feel we’re at risk of being scammed out of money?
Bill: Martin, terrific question. I wish these bad guys would have a red flag over their head. They are almost too good to be true. Why were so many hundreds of thousands of people scammed by Bernie Madoff? Because they abdicated their responsibility to stay informed. We’ve always known that knowledge is power. Well, financial services can be daunting. My lovely wife, she thinks differently than I do. She’s an artist, I’m more of a math guy.
She says, “You do all this stuff. I don’t want anything to do with it. I don’t understand it. I don’t want to understand it,” to which I respond, “Rita, honey, you have to at least have a cursory understanding, have some appreciation for where we’re invested and how it works and so on and so forth.” Yeah, we’re going to work together and make decisions of course, but you’ve got to join the game, but most people will … They’ll abdicate. They’ll say, “No, no, you do it.” Therein lies the crux of the matter. When they abdicate their responsibility to a financial advisor that they don’t know very well or that advisor doesn’t know them that well, that can be a problem.
Martin: Bill, thank you so much for joining us at Informed Choice Radio. Before you go, where can we get hold of a copy of your book and how can we connect with you online as well?
Bill: Thank you. Amazon.com, Barnesandnoble.com. We just came out yesterday with the publication. We’re very excited about it. It’s Madoffs Among Us: Combat the Scammers, Con Artists, and Thieves Who Are Plotting to Steal Your Money. Martin, I can be reached at Billfranchavilla.com. It’s B-I-L-L-F-R-A-N-C-H-A-V-I-L-L-A.com, or just google Madoffs Among Us and it’ll lead you to my site.
But it’s such a pleasure to speak with my friends across the pond, if you will. My wife and I love Great Britain. We visited London just a year or so ago and were so impressed with the people, lovely people. Thank you.
Martin: Bill, thank you so much. We’ll make sure we put links in our show notes as well so our listeners can find your book and find your website nice and easily. Thank you for your time.
Bill: It is my pleasure. Best to Emma. Thank you.