"How Do I Know I Can Trust You?"

Catherine Mathis |

You need help figuring how to meet all your financial goals. Your life is way too busy to focus on financial planning and investment management, even though it is important for the future.  Managing money is not your passion, or it is an area where you want some expert assistance. You found an adviser through a friend, on the golf course, by getting a mailer for tax services or a retirement seminar, or by searching the internet.

You meet with the financial adviser. The adviser is a great fit providing just the services you want.  You are ready to turn over all your hard-earned savings, roll over retirement accounts, open an education account, and so much more. Then you see a small blurb in the local paper about a financial adviser in the business for 20 years that started stealing client money about 5 years ago. And you just freeze. You want to ask, “How do I trust you?”

This blog is about outright theft and steps you can take to prevent being a victim. It is not a blog about bad service or disappointing returns. Some investments go bad and that is part of investing. This is about a person who literally takes your money and puts it in their personal accounts while sending you a statement saying everything is ‘just fine.’  


Do Some Homework

A person cannot be a financial adviser without being registered with state or federal regulators in some way, shape or form. The easiest place to start is www.finra.org. Click on the tab for BROKERCHECK which takes you to a page where you can search by the person’s name and/or their company name. You might have to dig a bit if their name is a common one.

There are two ways people show up in BROKERCHECK depending on whether they work for a broker/dealer type of firm OR they work for a Registered Investment Adviser. People who work for broker/dealers show up on the FINRA site. People who work for a Registered Investment Adviser show up on the SEC’s site.  The good news is that today, the two sites are linked. A person may have been a broker/dealer person and then they shifted to a Registered Investment Adviser. That is perfectly normal. You can look at their history in both places.

When you are on the FINRA page or the SEC page looking at a person’s name you can see their history in the industry. You will learn what regulatory licensing exams they passed. You can also see if they have any Disclosures. What is a Disclosure? A Disclosure is a record of either a client dispute or a compliance/discipline problem a regulator identified. A Disclosure is something to delve into, but not necessarily a reason to reject working with a person. Sometimes a client just gets mad and files a complaint that may or may not have valid grounds. Read the Disclosure information and see how serious it is. If a Disclosure is old and was dismissed, rejected, or settled for a small amount, then perhaps it was more about the person who filed it than the adviser. BUT…. If there are several Disclosures, or large settlements, or the person was suspended, or some other level of misbehavior that is serious, then you may want to find a different adviser. This is information to help you decide about trusting the adviser.


If you cannot find the person using BROKERCHECK via FINRA or the SEC, then run.

Individuals who claim to hold the Certified Financial PlannerTM designation can be verified on the CFP Board’s site: https://www.cfp.net/verify-a-cfp-professional.

Caution:  Just because there are no Disclosures, does not mean the person is not currently engaged in stealing from clients. It just means they have not been caught yet. Yikes!


The Qualified Custodian or Broker/Dealer

The next step is to learn about the adviser’s Custodian or Broker/Dealer. This is a complicated topic in its own right.

What is a Qualified Custodian? A Qualified Custodian is a company where your account lives. The role of the Qualified Custodian is to prevent your investments, cash, securities, and other account holdings from being stolen. This company also furnishes tax and regulatory reporting. The Custodian supplies a number of services to financial advisers. 

We will over-simplify the world here because there are overlapping type and services.

There are four huge Qualified Custodians, though a pending merger will reduce this to three:

            BNY Mellon’s Pershing,   TDAmeritrade,   Schwab, and   Fidelity

Schwab bought TDAmeritrade which means over the next few years, the resulting entity will be called Schwab.


In the broker/dealer world, there are hundreds of firms. The four largest independent ones are:

            LPL Financial, Ameriprise, Raymond James, Commonwealth


Of course, you have probably heard of the other type known as wirehouses:

            Merrill Lynch (Bank of America), Morgan Stanley, UBS, and Wells Fargo


What is the point here?

You want your account to live at a large, reputable firm. You want to be able to see your accounts on-line. A great way to check out the company is to research the business independently on the web. Do not rely on information provided by the adviser. Find a phone number and call the Custodian or the Broker/Dealer to check them out. You can even ask them if the advisor you want to hire is really affiliated with their firm. Very few people go this extra step.


Red Flags

Flag If an adviser or financial person ever says to make the check payable to their company or themselves, you have just had the largest red flag waved in front of your eyes. For example, we use TDAmeritrade as a Custodian. Our clients make out checks to TDAmeritrade. If we ever asked a client to make a check payable to Berkeley Advisors, they should refuse. The only place a check made payable to Berkeley Advisors can go is into a Berkeley Advisors checking account. But Berkeley Advisors cannot open an account at our company for you.

When asked to make a check payable to an entity, check out the company on-line. Websites are not hard to build so be skeptical. Anytime a check is not going to a Custodian or Broker/Dealer or Investment Manager, you should do homework on the entity.

Money should go to an account in your name at a Custodian or Broker/Dealer or Investment Management Firm. Not to your adviser! Ever! Ask questions.

Flag A second red flag is the account title. The account should be in your name, not the name of the advisory firm. If you use a major custodian, they will not open an account in the advisory firm’s name instead of your name. If you put the name of the adviser or the adviser’s company into the account’s title, then you are giving it to them.

Flag A third red flag is any guarantee of return, especially one that sounds great. If an adviser says you will get a return of 10% or 8% or 5% on your brokerage account be very wary. We cannot know what markets will do. There may be a bond or some fixed investment that has a coupon payment but proceed with caution. We do not think we are susceptible to a fraud, Ponzi scheme, or pyramid scheme. But we would like the certainty of an investment return or perhaps just a minimum investment return. That desire for certainty is the weapon an unscrupulous adviser can use against any of us. A return that is absolutely consistent or ‘carries almost no risk’ are flags waving wildly that you should be cautious.

Flag Testimonials on an adviser’s web site or in handouts are a signal of an adviser breaking the law. Some advisers do this, and it does not mean they are stealing. But they are breaking the law which should make you wonder. Advisers are legally prohibited from using testimonials to solicit business. Period. 

Flag A fifth red flag is being asked to give the financial adviser a Power of Attorney to do anything they want to do in your account. Actually, a Financial Power of Attorney gives the Adviser the right to access bank accounts, retirement accounts, and anything else you own. No financial adviser ever needs that type of access. Nor should your adviser ever be a Trustee for you. It is a question of both access and conflicts of interest.

It is routine to give Advisers the right to buy and sell investments in an account on your behalf and to debit your account for fees you’ve agreed to pay for advisory services. You many even sign a Standing Letter of Authorization to Move Money. You should only permit an Adviser to Move Money between your brokerage and checking accounts. Do not give them the authority to issue checks or wire money – let the bank provide those services.

We have a policy that we never wire money nor issue checks from a client account. Not all firms go this far.

Flag You are not given have on-line access to your accounts and statements. The old Russian proverb (so interesting it has a Russian origin!) popularized by Ronald Reagan is “Trust but Verify.” Getting statements from a Custodian is the key element of Trust but Verify.

We do a quarterly review for clients. But it is company prepared. A client should always view any company prepared statement with caution. And a company prepared document never substitutes for the statement issued by the Qualified Custodian. Our quarterly review is a way to ensure we closely look at each account every quarter. It is a tool not a substitute for a statement. Clients should always compare any company provided report to an actual account statement.


Your Responsibility

Seeking the consultation and guidance of a professional is a great step (though I am biased in this matter ?). It should be a relationship in which you have confidence and trust. Only you can protect you.

When you open an account, you will probably get copies of the documents for the new account. Keep those documents. One of them will be the underlying Agreement that says what the adviser can and cannot do. An adviser intent on stealing can doctor such documents after the fact to give themselves permission to take actions not in your interest. Being able to produce your copy of the original account documents is a form of protection. Today you can save it electronically.

Review your statements when they are issued. Some firms issue statements monthly and some quarterly. Know how often you should get a statement and get it. It seems silly to say this, but it is necessary: look at the statement. An adviser gains a good sense of who looks at statements and who does not. Often theft starts small. An adviser is behind on a tax bill and makes the inexcusable decision to ‘borrow’ $5,000 from a client account for just this month with a plan to return it. Perhaps they take the money and put it back and nobody notices. The second time is easier. Then somewhere in the pattern of time it becomes a habit. They decide not to wait for a new car or to take a trip. And it snowballs.

There is no substitute for looking at statements. Is there anything missing? Any entries look funny to you? What you do not understand you should ask about. If the adviser cannot explain or answer your question, that should raise your level of concern.

It does not hurt to look at your account on-line from time to time. As advisers we are forever telling clients not to get hung up in looking at accounts on a daily basis. There is truth in that. You want to be sure you can get on-line access and keeping it active is wise.

If you truly believe that money has been taken out of your account or never deposited to your account, then call the Custodian. The Custodian is even more interested in catching an adviser stealing money than you are.

Trust but Verify – Ronald Reagan’s Favorite Russian Proverb (and yours too!).



Live Fully Live Richly is not offering investment or financial planning advice, tax or legal advice, or any form of specific suggestions/recommendations for the reader. Examples are just that – broad examples to illustrate a point. Please review the Disclosures Page for more information.  © 2020

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