How To Find Out If Your Financial Adviser Is A Cheat
Financial advisers are getting a hard rap from the media. With stories of Bernie Madoff and Allen Stanford revealing just how far some advisers will go to cheat their investors, many are questioning the whole field.
I don’t think that’s fair. I’m sure most financial advisers are honest people and work hard for their clients. However, the problem may be that there’s a false confidence from enlisting the help of a financial adviser.
Hiring an adviser does not mean that you no longer have responsibility for your own economic future. And, if you go the adviser route, your responsibility begins with the criteria you select to hire him or her.
So how do you know if your financial adviser might cheat you?
Lavish Lifestyle
Free Money Finance has a great post that exposes the lifestyle warning signals of cheating advisers. Bernie Madoff had homes all over the world and spent tens of thousands each month just on private jets.
Hiding Behind the Community Pillar
If the lavish lifestyle is a warning signal, don’t be fooled by the community pillar act. Madoff gave a half-million dollars to the Democratic Party and took part in numerous clubs and foundations. Stanford gave money to St. Jude’s and universities. Giving to charities is nice, but it’s not when the adviser is using your money to appear so charitable.
Opaque Business Practices
Filmy, cloudy, opaque business practices are another sign that your adviser is a cheat. Are family members intimately involved in the bookkeeping? Madoff’s wife, Ruth, worked as his bookkeeper at one time and helped recruit investors. Standford’s girlfriend was involved with the business, as well.
"Sir" Allen Standford
Excuses. Excuses.
Be wary when your adviser offers excuses, instead of fulfilling requests. If it takes weeks to fulfill a simple request to provide a fund statement, for example, that’s a red flag. If they delay giving you money, that’s an even bigger, deeper red flag.
Don’t Be Fooled With Returns
Books can be cooked. And losses can be hidden. Make sure you verify the positions and returns with your own investigations. You don’t just want to see a percent return, you want to see how that money was made.
Be Paranoid
The reporting on the aftermath of these cases tries to make it sound easy to discover cheats and infers that investors were stupid not to recognize the warning signs. They weren’t stupid; they were trusting. Don’t be afraid to be a little paranoid with whom you trust with your money.
Finally, hindsight is 20/20, but caution and involvement in your own finances can act like Lasik surgery for myopia when interviewing and choosing financial advisers.
Related posts:
- Signs Your Financial Adviser is a Loser
- The Secret ‘Get Rich Never’ Scheme Of Financial Advisers
- How To Run A Ponzi Scheme
- You Can’t Win for Losing: Why Money Management Matters
- Weekly Wisdom: Solving Financial Challenges
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
