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The following is a transcript of Episode #38 of the Retire Happy podcast with Roger Gainer.
All episodes of the podcast can be found at Apple Podcasts, Google Podcast, and Spotify.
Roger: \”Price is what you pay at the beginning of a decision or transaction. Cost is a long-term consequence of your decisions.\” Make sure it doesn\’t sound too good to be true, listen to your gut. Now, whether it sounds too good to be true or not, your gut is going to be your best advisor. I\’ve learned this over the years, and we mentally override because we are getting all these conflicting messages during the day.
Clark: You\’re listening to \”Retire Happy\” with Roger Gainer, President of Gainer Financial & Insurance Services, Inc. Thanks for joining us. I\’m your host, Clark Buckner. In times of economic crisis or uncertainty, people are more likely to get scammed. So how can you protect your investments and avoid being taken advantage of? In this episode, Roger shares five key questions you should always ask before making an investment. He also shares some other advice to help you avoid scams and help you have a greater peace of mind. For more content like this, head on over to gainerfinancial.com. Enjoy the show. Hey, Roger, I\’m excited to have you back here on the podcast. How are you?
Roger: I\’m doing great. It\’s always good to be here talking with you, Clark, and to our listeners. I appreciate this opportunity.
Clark: I always look forward to these. I know I say that every time, but I do sincerely mean that. And we\’ve got an important topic today, it\’s a serious topic. And you know, right now around this in the world, there\’s a lot of challenges and this has been a reoccurring theme of talking about what\’s happening around us. But right now, as we see chaos, we also start to see scams, and we start to see people getting taken advantage of and a lot of bad. So you\’ve seen a lot. I know there\’s some examples you\’re going to be sharing with me today, and it\’s just a wild time right now. So I\’m hoping we can learn about this, so we can be prepared and avoid something bad happening to us from some sort of bad actor.
Roger: Yeah, thanks for that background. It\’s true, there\’s always financial scams going on. You know, nobody ever calls you up and says, \”This is a lousy deal, and you\’re probably going to lose your money.\” They always call you up and tell you how good something is or how well you\’re going to do or how much money you\’re going to make or how much more you\’re going to make because we\’ve got some kind of secret sauce. And over the years, I\’ve been doing this for over 30 years, well, over 30 years, and every time we see a slowdown in the business cycle where unemployment goes up, like back in 2008, for example, we saw a dramatic increase in the amount of scams just people get desperate. They figure out a way to get money because they\’re desperate. Or there are people of, let\’s just say less than stellar character and they know that there\’s people that are desperately looking for some way to make ends meet to get through, and so they get scammed because of that desperation. So it really has to do with your mindset. Does that make sense?
Clark: It\’s tough. Yeah, it does. Sort of related but also unrelated. I almost got scammed recently out of selling my Apple watch to somebody, I use Apple watch. And it happened so fast, thankfully, right as I was at the FedEx about to ship it off, I was like, \”Something\’s fishy here. Something\’s not quite feeling right.\” And that would have just been an Apple watch, not an entire investment or portfolio or losing a lot of money. And you feel really violated, it\’s a terrible feeling.
Roger: Right. It doesn\’t feel good. And that\’s you know, whether it\’s your life savings or a few hundred dollars, it just doesn\’t feel good to get taken advantage of in anything, who likes to overpay for stuff? Who likes to think you\’re buying A and you end up with B, and B doesn\’t work. Those are frustrations, for sure. And what really brought this up is something that\’s happened recently here, where I\’m sitting, in Marin County, California. And of course, Marin is pretty well to do. It\’s one of the richer counties in the country. And high levels of education, so tremendous majority of the residents of this county are college-educated, people have above-average incomes, for the most part. Median income is higher than like I said, almost any county in the United States. And so you think that this stuff isn\’t going to happen here, but about six weeks ago, in the newspaper was an article about a gentleman who died and he ran an investment house called Professional Financial Investors Incorporated.
Clark: And you knew this person or he was in your area?
Roger: He was in the area. Our paths crossed a number of times over the years, interestingly enough, the first time our paths crossed was back in the very early, mid 1990s, I would say, yeah, it\’s about 1995, 1996. So fairly early in my career, I was sitting down with friends of friends, gentlemen, was a doctor here in Marin County, and made a very nice living. And we were sitting down going over planning considerations and the beginnings of a financial planning process. And I looked at him, I said, \”Gee, you make a really good living, but you don\’t have any assets? There\’s no 401k, there\’s no CDs in the bank, you don\’t have a bunch of stocks and stock portfolio. What are you doing with your money?\” And he reached over and pulled out of a drawer in his desk, we were in his office, and he said, \”Every year I buy one of these.\”
And sure enough, he handed me the stack of papers, and each year, he was buying fractional interest in apartment building, somewhere here in Marin. And I said, \”Well, why this and only this?\” He said, \”Well, my CPA has been doing my taxes for 14 years and I have 14 of these investments because every year he says, you\’re going to invest this much in this, and I do, and I\’m making great money.\” I said, \”Well, this statement says you made 14% last year, but you only made 2% in cash flow, and the other 12% is depreciation.\” And I said, \”You know, under the current tax laws, you can\’t use that depreciation against your income from your medical practice, and you\’re not entitled to that deduction.\” Well, \”I don\’t know, it\’s just, you know, my CPA, I do what he tells me to do.\” Well, let\’s fast forward about six, seven months, we just decided I wasn\’t the right advisor for him, and that\’s just fine. But about six, seven months later, I\’m watching the evening news, and the guy that was his CPA, and then the guy who signed his tax returns, were both being led out of an office.
Clark: Oh, man.
Roger: In handcuffs.
Clark: Oh, no, no.
Roger: And I was like, \”Wow, that\’s something.\” And there\’s some things about the statements and the way that it was being run. I said, \”Who\’s auditing these? Where do these numbers come from? Because these were statements were being put together by his CPA.\” So it turned out that they were found guilty of quite a few accounts, filing improper tax returns, defrauding the federal government, other things. And after conviction, this guy spent 18 months in jail, and then ultimately, a few years later, had his CPA stripped by the Association. So by the late 90s, he was no longer a CPA, and he was a convicted felon. As a side note, the guy that was the friend of friends, I found out later ended up having to pay $400,000 in back taxes, fees, and penalties for filing, claiming, deductions, and filling out a tax form incorrectly. Because remember, even if you have a tax preparer, once you sign that form, it\’s your responsibility. Needless to say, that guy never spoke to me again, he was embarrassed.
So let\’s flash forward to about four years ago, in the building where my office is now. There\’s another tax preparer, very, very astute tax preparer. She\’s one of the best tax minds I\’ve ever met. And she\’s referred a number of clients to me over the years that we\’ve been in the same building. And I was working with one of her people who had this guy, or at least a guy with the same name, as her financial advisor, her investment advisor, you know, I said, \”Gee that name is awfully familiar, I wonder if it\’s the same guy?\” This woman had gone through some life changes and was in kind of a rough spot, and she was trying to hang on. And she said, \”You know, the investments you\’re showing me don\’t have a high enough rate of return, my other guy Ken, is giving me 11%. And if I get 11% on everything, then I can stay in my home.\” I said, \”Well, even at 11% you\’re gonna have a hard time keeping the house up.\” And as had been recommended by others, I was recommending that she sell the house because it was just too much of a financial burden.
So she\’s gone back to the other person, the tax preparer a few months later, sends me an email and says, \”I have a number of clients who are invested in this Professional Financial Investors, Investment Group, and they\’re paying 11% and they\’re really… You know, it\’s very attractive and people I know very well have been investing with these people for years and years and years. And I\’m thinking of investing as well. And this other client that you had been working with, she\’s decided she\’s putting all her money there.\” So I said, \”Well, okay, I wish you all the luck in the world.\” I said, \”If you\’re considering an investment, here are questions that you should be asking this guy prior to writing any checks or investing any money.\” And sure enough, I gave her a list of about five questions, those five are included in this month\’s blog posts. And we\’ll talk about them in just a minute. But so she sent those off to this guy in an email to the president, founder, owner of the company. And she forwarded me his response. And he responded, \”I don\’t have time to answer questions like that, if you don\’t want to invest with me, that\’s fine. I have plenty of other people who are waiting to give me their money.\” And thank goodness, this person chose not to invest in that pool.
This was about four years ago. So when I read this in the paper, and I had mentioned this other guy, Ken, who had lost his CPA and was convicted of fraud. And people were telling me, \”Now it\’s not the same guy.\” Well, this guy died back in May, and his wife hired an accounting group to figure out how healthy the business was because she was going to have to step in and start running things. There was a guy that was the president of the company who\’d worked his way up from being a bookkeeper to the president of the company. And so as this outside accounting firm was looking through their books, they started to realize that there were significant irregularities. So they called in a law firm. And they found out that for the past number of years, people weren\’t… Their investments weren\’t going to buying properties, they were being told they were, they were getting statements that they were. And one of the questions I asked him, \”Who audits your books?\” And that\’s…there\’s a flag right there when you won\’t answer that question.
So the SEC and the FBI got involved, and they froze all the assets. And the woman I told you about, who put everything with him, now has zero income and zero assets. Now, she\’ll probably get something back, once they\’ve gone through, and they confiscated assets. And they try to put together something to compensate the investors to get some of their money back. You can look at the Bernie Madoff case, and see that that\’s basically what they did at that time. Then his houses, there were some investments, all that money gets put into a pot too, and then allocated to the different investments. So you get pennies back on the dollar, but at least you get something but that can take years. And meanwhile, people were living and the paper has just been full of stories about people that were living on the income. And the income, they\’ve gotten this income for years and years and years. Because he started in the early 2000s doing this, not only that, the local paper when he died, went on and on about what a wonderful guy he was because he was very, very philanthropic, he sat on boards of charities, he sat on boards of other companies. He showed up at all the right events, and tons of people knew this guy.
Clark: Oh, man.
Roger: So it was… You know, I just believed that everybody…couldn\’t be that same guy. Well, of course, it was, and I just don\’t know how that\’s soon after a felony conviction, I mean, let\’s face it, felon can\’t even vote. But here this guy was, you know, getting man of the year awards and all this kind of stuff. So, he was good at it.
Clark: Man, you just never… I mean, how do you know someone they seem on the surface like they\’ve got it all together and then underneath is just hollow empty and it\’s not what you think it is.
Roger: Well, so how do you make sure that this doesn\’t happen to you? I mean, that\’s really the bottom line, isn\’t it? And that\’s why we\’re doing today\’s podcast. So the first and foremost, if it sounds too good to be true, you should at least check more because it probably is. If everybody else is paying 5%, 6%, 7%, and somebody is offering you 11%, you got to know why are you able to offer me 11%? What is it that you do differently than everybody else? And how can I verify that, right? Ask questions, ask questions. So the very first question is, is this investment registered with the Securities and Exchange Commission? You know, there\’s a lot of great private placements out there, there\’s some tremendous opportunities that if you\’re an accredited investor you can get in on, and there\’s even some good non-registered investments. But when you don\’t have that SEC review of the disclosure documents and the firm that sponsoring the investment, you have to do twice as much work because the SEC has a particular standard that they require, and they required disclosures. A lot of times, you don\’t get that without the SEC protections, so these investments were not SEC register.
Number two is who audits the investment? So if you\’re buying property, or you\’re buying into a business, you just don\’t want to take that business\’s word for how much money they\’re making, you want an outside auditor with liability, responsibilities to certify the financials, you know, are they really collecting that much in rents? Are they really selling that many widgets? What is their cost of goods? That whole kind of thing. You know, PFI did their own audits. That was the question number one is, who does your audits? Because what I read, it\’d be was pretty clear that they were auditing themselves, you know, if you\’re a disgraced CPA, you know how to phony these financial statements, right? Just because you can\’t use those letters doesn\’t mean you lost the knowledge, and you can make it look pretty good.
So, you know, that outside auditor is an important protection for an investor. And who is that auditor? Have you heard of them? Are they respected accounting firm? Or they\’re Joe\’s Tax and Audit down the street? It really depends. Then when you go to make your investment, here\’s the third tip, who do you write to check to? Bernie Madoff\’s investors wrote the checks to Bernie Madoff. Now, I\’m not sure who these folks wrote their checks to, I imagine that the professional financial investors wrote a check to that company but I can\’t find that doesn\’t mean they weren\’t, but I have not been able to locate any evidence that that fund was registered with the Securities and Exchange Commission. And who owns the investment? So PFI, invested in real estate, real estate title is a public piece of information. So if you\’re thinking about buying into something like this, see who\’s on title to that property? You know, if it\’s a startup, who are the principals? Who are the people that are behind that startup? Because, again, there\’s some great investments in startups, angel investments. But do these folks have the background expertise, connections, and plan to be successful in whatever it is you\’re investing in? Do a little research, it\’s your money. I tell people this all the time. When we\’re back, who do you write a check to? I tell people, if I ever asked you to write a check payable to me, run, do not walk out of my office. Okay.
Clark: And as you\’re talking about this, I can hear the sirens going off.
Roger: So those sirens should go off in your head [inaudible 00:18:13].
Clark: That\’s what I\’m thinking, that\’s sound the alarm.
Roger: There you go. Do that research. Nobody really cares about your money as much as you do, right? Brokers, \”Oh, you lost 20%, that\’s really a shame, I feel so bad for you.\” But that may be the difference between retiring and not retiring. So take the time to understand what you\’re investing in. A lot of folks take more time planning vacation than they do understanding their investment.
Clark: Wow, that really puts into perspective. So right now, when there is so much uncertainty, I\’m just gonna as referred to round out this particular conversation, are there any other thoughts or strategy someone could be doing as they\’re looking into something? Of course, you said one of the big tips if something doesn\’t feel right, if it sounds too good to be true, it is likely that\’s the case. Is there anything else that someone could be thinking about as they\’re looking at, especially in time right now when, you know, there is a lot of… You know, you turn your TV, there\’s a lot of fear, there\’s a lot of unknown, there\’s… So anything else you can leave us with as relates to avoiding getting taken advantage of.
Roger: One of the very first questions I encourage, that I asked when I\’m looking and vetting and doing my due diligence on a new investment option or opportunity is how do I get my money back? And when do I get my money back? You know, what does it take? There\’s a quote that I used to actually have on my website that was falsely attributed to Will Rogers. And it goes like this, \”The most important thing in any investment is the return of my money, not the return on my money.\” You know, it\’s easy, that 11% looks so good, you might just overlook a few things details that should be red flags along the way. How do I get out of this? When can I get out of it? So some investments have had… You know, we have real estate investments that have holding periods that are 3, 5, 7, and even 10 years, so you got to expect that. And if something comes up along the way, know that you may not get all of your money back. So you have to weigh is that worth it based on what I\’m trying to accomplish.
And then finally, I want to wrap this up with this thought, just like you said, \”Make sure it doesn\’t sound too good to be true. Listen to your gut.\” Now, whether it sounds too good to be true or not, your gut is going to be your best advisor. I\’ve learned this over the years, and we mentally override because we were getting all these conflicting messages during the day. Oh, it\’s time in the market, not timing the market. You might have felt uncomfortable last fall about stocks. I know, several people who sold and turned to cash last fall. And yeah, they missed a January and February of this year, but they\’re very, very happy people. You know, and they bought back in somewhat in March but they said, \”Just not right, it doesn\’t feel right.\” So definitely listen to your gut, don\’t turn it off, don\’t override the program. And you worked hard for your money, you made sacrifices, and you\’ve done what needs to be done to build financial security. It\’s just a shame to see it taken away just like that. So that\’s really what I want people to adopt as a consistent behavior. Listen to that gut. Ask those questions. And I want to leave you with this really wonderful quote that I heard some time ago, \”Price is what you pay at the beginning of a decision or transaction. Cost is the long-term consequence of your decisions.\”
Clark: I love that. And this whole show and everything you do, it all comes back to retiring happy, and it\’s not about trying to squeeze out every penny and living every single night restless in your bed nervous, it\’s about making the right decisions for you. That\’s what I\’m hearing from you. It\’s about making the right decisions for you, it\’s your money, put the time in and I know you and your team are a resource for all this. And so someone can go to your website, get what\’s called a thought organizer, which is going to help them identify what is most important to them and, you know, you or someone from your team will reach out.
Roger: Absolutely, you can always contact us through the website, www.gainerfinancial.com, and we\’ll get right back to you.
Clark: Thank you, Roger. Looking forward to our next chat.
Roger: Thanks, Clark. I really appreciate the time today.
Clark: Information regarding the published story discussed in this podcast was based on generally available news reports and is not based on any additional personal knowledge. Roger Gainer and Gainer Financial Services are not drawing conclusions resulting from the alleged criminal acts that are under investigation. Roger L. Gainer, RICP, ChFC, California Insurance license number, 0754849, is licensed to sell insurance and annuity products in California, Illinois, Arizona, and Nevada. Roger L. Gainer is an investment advisor representative providing advisory services through HFIS, Inc. a registered investment advisor. Gainer Financial & Insurance Services, Inc. is not owned by or affiliated with HFIS, Inc. and operates independently.
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