Protect yourself from getting swindled!

Just because the logo for a big brand name appears on a financial advisor’s business card, it doesn’t mean you are safe.

Several professional athletes such as NFL quarterback Mark Sanchez, Major League Baseball pitchers Jake Peavy and Roy Oswalt were recently defrauded of about $30 million by a wealth manager at a large wealth management firm with a recognizable brand name. That firm has about 25 managers and over $4 Billion under management. Read the full story here.

While I don’t know exactly what went on in that situation, there are a few red fraud flags that a careful investor should have noted.

  • Did the investment show up as an asset on their monthly or quarterly statement? My guess is that the manager hid the investment from his firm and therefore did not include the investment in the investor’s holdings. Had the management firm known about this, they probably would have put a stop to it or at least you would hope.
  • Most firms have well-defined conflict of interest rules. If your advisor is trying to circumvent the policies, there’s probably a problem. It’s not good if your advisor is telling you that this investment is a secret just for you.
  • Does the wealth advisor custody the assets at a well known brokerage? For instance Arkin Financial Advisors places all of our clients’ assets with Charles Schwab. My clients have access to their investment information at all times. It is very difficult (usually impossible) to get Schwab to accept non-publicly traded stocks and bonds. Also, quarterly reports are prepared by the BAM Alliance, of which I’m a member. The BAM Alliance is a network of over 140 professionals throughout the US, representing more than $26.2 billion of collective assets under management or administration as of March 31, 2016. In this case 3 parties would need to be in collusion to hide your investments.
  • Be careful when an advisor plays too much to your emotion. This thief played up his Christian values. Jack Madoff, the largest swindler, fleeced many Jewish clients by promoting his common bond with them. While it is important to have a relationship of trust with your advisor, it should be in Reagan’s terminology: trust but verify.
  • You should be well diversified. At AFA we consider “well diversified” to mean that you would hold many funds owning thousands of equities and bonds. Sprint for the door if an advisor steers you to place a large amount of money in a single holding.
  • It’s always your money. Meet with your advisor and ask questions. If your advisor gets too defensive, there may be a message there. If your advisor tells you that he is doing you a favor by taking you as a client, find someone who appreciates you. An advisor is never doing you a favor to take you as a client. We meet with our clients quarterly and I’m not doing any of my clients favors. In fact, they are doing me a favor by trusting me to handle their financial planning.

Arkin Financial Advisors, LLC (AFA) is a Savannah based fee-only Registered Investment Advisor and a member of the BAM Alliance, a community of more than 140 independent wealth management firms located throughout the United States united in the belief that there is a more effective system for investors to reach their financial objectives.

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