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Every since Bernie Maddoff made the news, there have been countless stories of investment advisors going rogue and not being a proper steward of their clients’ assets. I have read these stories with dismay as each one of these stories makes it more difficult for anyone to trust a financial advisor/planner or other investment professional.
In recent news, a long-time Seattle financial advisor was indicted by a federal grand jury with 23 criminal counts, including wire fraud, money laundering and investment advisor fraud. He was accused of diverting clients’ assets from accounts he managed to risky start-up ventures in which he or his investment firm had an ownership interest. The clients were told by the advisor that their assets were conservatively invested in publicly traded companies and in bonds. The financial advisor allegedly provided them misleading statements over time, falsely describing the value of their accounts and how the money was invested.
What lessons should we learn from this and other stories? First and foremost, there are crooks (posing as trusted advisors) out there with sophisticated schemes aimed at stealing your money. The second lesson is that clients should demand and expect that they will receive third party statements from independent custodians of their money. In other words, if your advisor invests your money through XYZ brokerage, then you should receive a statement from XYZ brokerage in addition to any statement generated by the advisor himself. The third lesson is to trust your instincts. If it sounds too good to be true, it probably is. The fourth lesson is to get second, and maybe third opinions as well as referrals of trusted advisors.
Luckily, the FBI, the Department of Justice and various state agencies are beginning to make the discovery and prosecution of financial fraud and elder financial abuse a top priority. When you have a chance, please express your support for these efforts. Tell your politicians and judges that these types of crimes are as bad, if not worse, than being robbed at gunpoint. When you are robbed at gunpoint, at least you know you have been taken. When some crooked advisors in a nice suit takes your money, you usually don't know until it is too late.