How to Protect Yourself When Choosing an Advisor

I was reading this ARTICLE about yet another Ponzi scheme/financial fraud taking advantage of professional athletes. These are the types of stories...

I was reading this ARTICLE about yet another Ponzi scheme/financial fraud taking advantage of professional athletes. These are the types of stories that make headlines. but if you spend any time watching American Greed on CNBC you’ll see it happens to everyday people as well.

Here I offer some suggestions to help you pick a financial advisor. I want to be very clear though, even if you follow this advice exactly you aren’t 100% guaranteed that your experience will be good, but you will improve your odds.

For instance, Bernie Madoff was a fiduciary for his clients, that didn’t stop him from perpetrating a massive Ponzi scheme. However, there were red flags; for one he used a small bank as a custodian. Also, he accepted checks made out to himself personally.

Make sure your financial advisor uses a large, well-known custodian, for instance TD Ameritrade or Charles Schwab. While you may receive monthly statements from your financial advisor, you should also receive quarterly statements from the custodian. Every quarter compare your advisor’s statements with your custodian’s statements and make sure there are no discrepancies.

Only work with a CERTIFIED FINANCIAL PLANNER™, to obtain and maintain the designation a person must meet for education, exam, experience, ethics and continuing education requirements. While this alone won’t guarantee your financial safety, it may very well weed out some of the likely bad players. For example, if someone was convicted of tax fraud or embezzlement, they can never become a CFP®. 

Finally, I would be wary if your advisor suggests investing in exotic or private placement investments. Financial fraud schemes are rife with these types of investments. Unless you are specifically looking to get involved in; movie development, music production, business start-ups, real estate developments, etc. it would be odd for a financial advisor to recommend them for the core of your portfolio.

The reality is most people could benefit from the age-old advice of K.I.S.S. when it comes to their investments. Just Keep It Simple Stupid.

A friend and colleague of mine says it best, “You can’t legislate morals and values.” No matter what regulations are in place there will always be bad players in every industry.

It is imperative that you do your homework when hiring a financial advisor. A good place to start is with a background check through FINRA that can be found HERE.

If you aren’t currently working with a  CERTIFIED FINANCIAL PLANNER™ you should be, you can find one HERE.

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There are lots of things to consider when choosing a financial advisor. Start by asking the right questions including whether your advisor is a fiduciary.


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