If you're thinking about working with a financial advisor, you may have
some concerns about whether or not the advisor can steal your money,
and that's understandable. There have been some high profile cases, including
the Bernie Madoff event, and if you look at the local news and
even some financial advisor industry publications, you occasionally see
cases where an advisor bilked their clients out of their life savings.
So that's what we're going to talk about here for the next couple
of minutes. We'll go over when the risk is greatest or when it's
easiest for somebody to steal funds from you. We'll go over ways to
work with a financial advisor without taking those big risks, so if you
just want to eliminate the risk and not hand your money over to
an advisor, there are some of us that will work with you that
way. We'll go over that and we will cover some additional tips that
can help improve the chances of you keeping your money safe as you
work with somebody. Perhaps the biggest risk when working with an advisor
is if that advisor has what's called custody, and this is a regulatory
term, that means the advisor actually takes possession of your funds,
so in many cases, when you're working with somebody, you're going to write
checks to, let's say Charles Schwab or Fidelity or Vanguard or whatever
custodian it might be, and that organization holds your funds, but some
advisors, such as in the Bernie Madoff scheme, will actually take possession
of your money and invest it from their accounts. Now, that's not always
a bad thing. There are some honest people who do this,
but if you did happen to run across somebody who's dishonest,
that practice makes it much easier for them to take funds,
so when you're using an independent third party custodian who's not your
financial advisor, for example, let's say it's Charles Schwab or Fidelity,
that company will print statements that you can reasonably rely on to probably
be accurate. If it says your account balance is X and you have
whatever shares of whatever investment, there's a pretty good chance that
that's actually true. But if there's nobody watching over whoever creates
the statements, for example, when your advisor has custody, then there's
more of a problem and there's an opportunity for somebody to falsify those
documents, plus your funds are also in an account that the advisor has
access to, so if they want to take withdrawals, they can just do
that. So, how can you reduce the chances of problems? And there are
two ways to do this in addition to some other tips we'll talk
about, but. One is to insist on working with an advisor that uses
an independent third party custodian. So when you do that, again,
the payments or the deposits or transfers go into your account over at
that custodian and the advisor never takes possession of that money.
The custodian typically sets limits, and you need to verify this with your
advisor and your custodian, but the custodian typically sets limits on what
the advisor can do. So the financial advisor might have trading authorization
and be able to buy and sell securities for you, and they may
even be able to transfer money from your bank account to the custodian
and back... But these are all within accounts that are under your name,
so the advisor can't, for example, write themselves a check or transfer
money over into their own accounts, except for there may be one exception
down at the bottom, their fee deductions, if you authorize and if you
happen to be in a relationship with an advisor where they take an assets
under management fee, then they can potentially take a small fee out,
but. Bigger fees should ideally... This isn't guaranteed, but bigger fees
should trigger some sort of warning at the custodian if the advisor is
taking bigger withdrawals. In. An ideal world, you have full control over
all of those permissions that your advisor has, and it should be as
easy as making a phone call if you decide that you're uncomfortable for
any reason with the advisor, you can call up the custodian and say,
"Hey, please remove that advisor from my account." That doesn't necessarily
deal with whatever agreements you had with the advisor, but it can stop
them from doing anything in your account while you figure everything else
out. A different way to handle this is to work with an advisor
on an advice only basis. So that is where the advisors are not
taking your money and investing it for you, even at a custodian.
You might just do the investment yourself, but ask an advisor for some
help. So you might say, "How should I invest... Am I doing the
right things? I want a second opinion." That kind of thing,
and that is where an advisor can do some calculations for you and
help you figure out if you're on track for retirement, how much income
can you give yourself what kind of taxes might be due as you
go through retirement. And this is an arrangement that I offer to clients
and many other advisors do as well, and that's where we don't need
your money, we don't need your Social Security number and all that other
stuff, you can actually block out a lot of information like your home
address so you can upload documents securely, don't email documents, please,
but you can upload documents and just block out anything that you don't
want your advisor to know because that might assist them in identity theft.
Now, before we get into some additional tips, I just want to give
you a friendly reminder that this is just one video, so it's just
a short superficial treatment of the topic, I hope you will do a
lot more research and please consult with some professionals if you would
like additional information and individualized guidance. So how can you
make sure that you avoid problems? Number one is just to make sure
that any payments are not going directly to your advisor or the advisor's
firm. Now again, sometimes it's okay to work with somebody who has custody,
you want to definitely know who you're working with and be 100%
certain that you can trust that person and that firm. So ideally,
your checks are payable to a custodian... Let's say it's Charles Schwab,
Fidelity Vanguard, and typically it's payable to that company, then it might
say FBO or for the benefit of your name on a roll over,
and that way the money can only go into an account for you,
so that's the biggie right there. You can avoid a lot of problems.
Next is to research your advisor, and so there are some regulatory places,
I'm going to include a link in the description below that you can
use to look up any advisor, and that's a great way to start,
see if there are any incidents of fraud in their past,
and that can be a red flag, but you want to know who
you're working with, there may also be other bodies like let's say the
CFP® Board, if your advisor is a certified financial planner practitioner,
you can go look them up there as well and see if there
have been any regulatory or any disciplinary actions taken against them.
Finally, it's worth just Googling the advisor and maybe even including the
word "scam." That can tell you a couple of things, or maybe you
might find that your advisor has been quoted in lots of mainstream media,
really reputable type publications, and that can give you an idea that maybe
the person is legit because journalists have looked into them and maybe
it's happened numerous times over. That could be a signal, certainly not
a guarantee, but it could be a signal that you're working with somebody
who is reputable. Next is to never share passwords. I can understand how
it might seem easy just to give your password to your financial advisor
and have them take care of it, because they understand that stuff,
it totally makes sense, but it's really dangerous to do that.
Your advisor has complete access to your accounts. A different way to do
that is to maybe share screens or sit in the same room with
your advisor as you go through things and they can type in what
they need to type in and click on all the things they need
to click on, but you have full control to stop the process,
if anything makes you uncomfortable. Next is to monitor your accounts,
so just keep an eye on any emails you get, any mail you
get, especially mail, because that can often indicate an address change
or something that's like a major move that could be part of an
identity theft operation, you want to look at that mail and if you
get something you don't expect, contact your advisor and contact the custodian
separately and just ask them What's going on. Look through your list of
transactions and make sure that everything makes sense to you. If you see
trades you don't understand, or if you see withdrawals you don't understand,
those are definitely something you want to address as quickly as possible.
If you found this helpful, please leave a thumbs up. That's feedback for
me. That helps me know that I should do more of this.
Thanks, and take care.