When Those you Trust can’t be Trusted

One form of financial fraud that is particularly painful to discuss is advisor fraud. What if the financial advisor you have trusted, turns out to be the one stealing from you?

I regularly track the SARS (Suspicious Activity Report) issued by the banking industry through the Consumer Protection Bureau. A recent report found that 25% of financial crimes against seniors were committed by a family member and a disturbing 7% by a financial advisor. It also revealed that when those two groups are involved, the financial loss is usually greater.

We are all cautious of unsolicited emails, phone calls from foreign countries, and strangers in the parking lot, but when friends or family are involved, we naturally put our guard down. In my career I have seen many cases of financial crimes committed by family, often children against aging parents, as well as by neighbors, friends, and even fellow church members. These are sad events, and the best defense is to be aware that where money is involved, you should always be careful. We should also watch out for each other because when friends and family are the perpetrators, victims are often reluctant to take action even after they discover the crime.

As for financial advisors, sadly, there are bad actors in every profession. There is no guaranteed integrity test and sometimes wolves lurk under the most innocent looking sheep’s clothing. Despite our best efforts, some slip past the protections that are put in place. So, what do you do? In my meetings with potential clients, I don’t just discuss the money we plan to make for them. That’s the fun part. But I also talk about the various things that could go wrong. As part of that discussion, I ask them to consider a very pointed, and necessary question. “If someone in our office, or at our brokerage firm should find a way to steal your money, what protections do we have in place to protect you?”

This usually surprises them but since we cannot know for sure the integrity of all the people around us, I find this question to be of utmost importance. I encourage anyone who deals with others on a financial level to ask a similar question. I encourage anyone with a financial advisor to ask them this question. You may not like the answer some of them give you.

In addition to following stringent best practices for client account security, legitimate investment professionals like ourselves have various insurance policies in place to protect clients from fraud. (Not to be mistaken for normal market losses). Insist on knowing what those policies are, and their limitations. Demand to know, if your money is stolen, will it be replaced and under what terms.*

I am a firm believer in receiving professional financial advice. I also have seen enough trouble to know that you should never trust your money to anyone until you know what steps they have taken to protect you, even potentially from them. Good advisors will welcome these questions.

* For answers on how we protect our clients from fraud please contact our office.