ATX Portfolio Advisors, Fee-Only (When You're Up) Financial Planning & Wealth Management

View Original

Don’t Be Schloss'd: Avoid Being Blindsided by Schemes in the Investment World

In a move that stunned the college sports world, Texas A&M head baseball coach Jim Schlossnagel departed the Aggies one day after playing in the College World Series finals. Most observers would have been surprised by such a move in any similar circumstance, but his departure into the burnt orange sunset 90 miles to the west was shocking and felt akin to other flimflams I have witnessed over the decades as an investment advisor.

I’ve had the unpleasant experience of working with clients that have been Schloss’d by infamous rogues such as Bernie Madoff, Allen Stanford, and Austin’s own Kurt Barton, to name a few. Schlossnagle's treachery may not have seemed so devious if it weren't for his declaration the day before he left: "I took the job at Texas A&M to never take another job again. That hasn’t changed in my mind."

Ponzi schemes, named after the notorious swindler Charles Ponzi, are fraudulent investment scams that promise high returns with low risk. They use the money from new investors to pay earlier investors, creating a facade of a profitable business. Regrettably, investors, akin to fans who deemed Schlossnagel a long-term commitment following his impressive performance at the College World Series, can succumb to persuasive sales pitches and the deceptive appearance of stability.

1. Understand the warning signs.

The first step in avoiding investment scams is recognizing the warning signs. High returns with little or no risk should always raise a red flag. Investments inherently come with risk, and promises to the contrary are often too good to be true. Overly consistent returns regardless of market conditions can also be a telltale sign of a Ponzi scheme. Just as a team’s performance fluctuates season by season, and so do investment returns, regardless of who is managing them.

2. Research the investment and the people behind it.

Before committing to any investment, thorough due diligence is critical. Research the company’s background, its business model, and the credentials of the people involved. Transparency is key. Legitimate firms will be open about their activities and willing to provide detailed, verifiable information about their operations.


Consider the infamous Bernie Madoff scandal—Madoff, a respected figure in the financial world, managed to operate a fraud largely because investors took his reputation at face value without scrutinizing the underlying business operations. Just as coaches scout their players, investors must do so with their investments.


All legitimate financial advisors and investment firms must be registered with regulatory bodies, such as the Securities and Exchange Commission (SEC) or state securities boards. These organizations provide platforms to check the credentials of financial entities, as well as audit them occasionally for compliance.

3. Beware of secrecy and complex strategies.

Ponzi schemes often involve secretive or overly complex strategies that are difficult to understand.  If your advisor is using jargon you don’t understand or cannot explain their strategies clearly, it’s a potential red flag. Transparency about how investments work and how returns are generated is fundamental to any legitimate operation. Though you might not be a financial professional yourself, the people you are trusting with your money should be able to clearly explain what their strategy is.

4. Monitor your investments.

Regular monitoring of your investment is essential. This doesn’t mean you need to check every day, but it does mean regular reviews and being aware of any changes or transactions. The easiest way to do this is to insist assets are held at third party custodians (brokers) like Charles Schwab or Fidelity Investments. Their online tools and services can help you keep track of your investments in real-time. 

5. Diversify Your Investments

Don’t put all your eggs in one basket. Diversification is a cornerstone of sound financial investing.  It involves spreading your investments across various assets to reduce risk. If an investment turns out to be a dud, you won’t lose everything. Think of it as a sports team that can overcome the loss of one or two star players.

6. Trust your instincts.

If something doesn’t feel right, it probably isn’t. Trusting your instincts plays a crucial role in investment decisions.  High-pressure tactics, demands for immediate decisions, or guarantees of outlandish returns are all indicators that something is off. Just as you might sense that a coach’s departure is imminent due to changes in their behavior or statements, so too might you sense that an investment doesn’t add up.

Avoiding Ponzi schemes and other investment traps requires a blend of vigilance, skepticism, and research. The world of investments, much like collegiate sports, is filled with unforeseen plays and strategic shifts. By understanding the game—both its rules and its players—you can better safeguard your financial future against those looking to make a quick escape with your hard-earned money. If you would like to have a better understanding of your portfolio and/or plan, get in touch.