Be Careful Out There





Here’s a disconcerting claim at Frontline:

A new working paper by professors from the University of Chicago and the University of Minnesota suggests cause for concern. According to the study, 7 percent of advisors have been disciplined for a fraud dispute or some form of misconduct. That can include anything from putting a client in unsuitable investments, to misrepresenting or omitting key facts, “excessive trading,” negligence, or trading on a client’s account without his or her permission. Of the registered advisors who engaged in misconduct at least once, 38 percent are repeat offenders.

And here’s another:

Misconduct is not necessarily a career killer, though. While roughly half of advisors lose their jobs after an offense, 44 percent are back in the industry within a year. That’s especially troubling, as “prior offenders are five times as likely to engage in new misconduct as the average financial advisor,” according to the study.

Seth Turner at Utah’s Deseret News has some suggestions on how to avoid working with an advisor with such tricksters:

  • Know how your advisor makes money. I basically agree with him, though I tend to push back against his subtle anti-commission bias. Yes, you should be clear on what you’re paying and yes, if there’s a less expensive way to achieve the same ends, more power to you. But a lot of very good financial advisors make their living via commission. Don’t write them off simply because that’s how they get paid.
  • Ask for certifications. Again, good advice, but don’t take it too far. The author mentions CFP, ChFC, and CFA as key certifications. Which one of those is not like the others? Don’t know? My point is not to denigrate the CFP and ChFC designations–both valuable credentials–but they are orders of magnitude less difficult to obtain than a CFA. I’m talking the difference between an undergrad and a graduate degree. In any case, don’t just look at the certification on your advisor’s business card, go to the certifying body’s website and check up on your advisor.
  • Ask about fiduciary responsibility. Turner almost offers a good bit of advice on this point: get a “written agreement of fiduciary responsibility.” I say “almost” because I’m not sure what such an agreement looks like. What I recommend is what I am now using with my clients: an engagement agreement, which spells out what I am doing and not doing for my clients, what I will charge them for my services, and when our “engagement” ends.

Turner then asks “What if you find out your advisor has a history of fraud?” He’s a little more forgiving than I would be. “Probably best-off looking for a new financial adviser”? No, you should probably run for the hills. Your finances should not be rehab for fraudsters. Your potential advisor might be a nice guy or gal now, but let them find employ elsewhere, preferably in a a different occupation where they can do good without doing bad to someone’s brokerage account. Remember: “prior offenders are five times as likely to engage in new misconduct as the average financial advisor.” FIVE TIMES.

You have a long road ahead of you. It will be an easier trip if you have the money to reach the end.

Speak Your Mind


The Wyoming State Bar does not certify any lawyer as a specialist or expert. Anyone considering a lawyer should independently investigate the lawyer’s credentials and ability, and not rely upon advertisements or self-proclaimed expertise. This website is an advertisement.