Financial fraud and identity theft can be emotionally and financially devastating. It’s worse when it happens at the hands of a trusted advisor or financial professional. Scammers can be anywhere so you best be prepared to protect yourself. Use these financial self-defense moves to protect yourself and your hard-earned wealth.
When I was a Boy Scout, we learned the mantra: BE PREPARED. But it was more than a motto. We lived by it in how we prepared for emergencies and packing for camping trips. Now, as a professional financial planner, I work with clients all the time to help them think of ways to be better prepared for the curve balls that life has a way of throwing.
As I tell every client and prospective client, you need to have a process in place to screen your advisors and your investments. Whether you’re hiring someone to build your bathroom, perform surgery or manage your financial affairs, you should do your homework.
When it comes to money moves or investing (they can be different), you have to control what you can. And although you may not be the money manager – that’s presumably one reason why you’re hiring an advisor – you can control things by having a good initial and follow up due diligence process.
- Check Out Your Financial Planner’s Background: Not all financial planners are created equal. In fact, the term financial planner isn’t even regulated. So almost anyone can call himself a ‘financial planner.’ For those who deal in securities or insurance, you’ll find federal and state regulators who keep tabs on them. So check out the various regulator websites. You can start at www.adviserinfo.sec.gov. You should also check out the various professional designations held. All of those letters after your adviser’s name on his business card mean something. And checking out if someone is a properly credentialed CPA, CFP® or anything else is a phone call or click away.
- Never Leave Blanks on Paperwork: This is plain common sense. When I complete paperwork, I’ll mark ‘N/A’ or cross out sections that don’t apply to the client. And I give copies of completed forms for a client to hold in his files.
- Ask if Your Investments Are Regulated or Supervised by Third Parties: For those who are licensed to sell investments or insurance, they will have compliance supervisors at their firms as well as the regulators noted above in #1.
- Make Sure You Receive Regular Statements from Independent Third Parties: You should expect statements or online access to your accounts from an independent custodian. If you’re getting statements printed up by the individual adviser, start asking questions.
- Verify That Investment Managers Are Independently Audited: Each prospectus of any investment includes information about independent auditors. And for these open-ended, publicly traded investments, there’s plenty of federal regulation. For non-publicly traded investments like partnerships in oil or gas wells or real estate, you can check the financial statements included with the investment disclosures, call or email the auditing firm and even have another trusted adviser take a look for you.
- Always Make Your Checks Payable to the Advisor’s Business or Custodian: Whether it’s for financial planning fees for services or the amount of money you’re investing, you should not be making checks payable to the individual.
- Take Your Time Before Making Any Decision: Don’t be rushing to make major decisions especially after a life-changing event. Don’t be forced to make a money move because your adviser indicates that this deal is offered only for a limited time. If your mom is like mine, she would have said that ‘there’s always another bus coming by.’
- Ask the Advisor About the Pros and Cons of Investment Ideas: There will always be good and bad in anything – especially with investments. And besides death and taxes – any maybe US Treasuries – there are no guarantees. If your adviser can’t outline these and only sees sunny skies ahead, run – don’t walk – for the exits.
- Understand How Your Advisor Gets Paid: Follow the money. There may or may not be a conflict of interest here. And if an adviser is getting paid a commission for the product he is recommending, that doesn’t necessarily mean that the product is bad for you. It may be a conflict but the adviser should be able to explain how this product fits into your goals and how he is handling that possible conflict of interest.
- Consider All the Charges You’ll Incur: Nobody likes to read the fine print. And as I get older and need to find my reading glasses, I know it’s a pain. But it needs to be done. And you need to be an informed buyer. Just remember that there’s no free lunch. Everyone needs to eat and companies need to keep the lights on. So don’t expect that the insurance or investment company is doing anything for free.
- Have a Trusted Friend of Relative as a Back Up: In case something happens to you, you should have someone trusted designated as a back up. If you’re out of the picture, who will handle things? This is where you should be talking with a lawyer to square away your estate plan and put a durable power of attorney in place. At the very least, you should ask the adviser if there is a form that can be filled out to name someone as a back up for the particular investment or insurance. And don’t choose the adviser himself.
- Understand Your Investments: One simple investing rule that Warren Buffett lives by – Only invest in things you understand. It’s worked for him. And you should consider this rule, too. If you don’t understand the concepts, ask the adviser to take time to explain them. And get a second opinion if needed.
For more on these financial self-defense moves, check out this resource available from the CFP Board here: