Financial advisors come in many forms but they are there to possibly help you and your family make correct and responsible financial decision. Some specialize in estate planning, some specialize in cash flow management and a lot of them handle protection and investment planning. They have varying degrees of education and experience and as such responsibility should be taken when selecting one.
As I have stated, I constantly read WSJ.com’s Personal Finance Section online, I find that their articles are usually interesting and informative; well tonight I read an article which was neither. It was titled, “How to Steer Clear of Shady Advisors” written by Mary Pilon. It was obviously (in my humble opinion) written by Ms. Pilon to be a direct response to people worrying about the Madoff situation.
For the benefit of those of you who have live underneath a rock,Wikipedia succinctly offers what is going on,
Madoff was arrested by the FBI on December 11, 2008 on criminal charges of securities fraud, turned in by his sons after he allegedly told them that his business was “a giant ponzi scheme.” The alleged behavior involves an asset management unit of his firm, rather than the better known market making unit.
The criminal complaint alleges that investors lost $50 billion because of the scheme. He was charged with a single count of securities fraud. Madoff was released on the same day of his arrest after posting $10 million bail. He faces up to 20 years in prison and a fine of $5 million if convicted. According to the SEC, Madoff confessed to an FBI agent that there was “no innocent explanation” for his behavior, and that he “paid investors with money that wasn’t there”. His attorney stated that he “will fight to get through this unfortunate set of events.”
Well, Ms. Pilon attempts to offer 5 “gems” how to avoid this sort of fraud.
First, I’d like to point out some of the effected institutional clients:
- Fairfield Greenwich Advisors, $7.50 billion
- Tremont Capital Management, $3.30 billion
- Banco Santander, $2.87 billion
- Bank Medici, $2.10 billion
- Ascot Partners, $1.80 billion
- Access International Advisors, $1.40 billion
- Fortis, $1.35 billion
- Union Bancaire Privée, $1.00 billion
- HSBC, $1.00 billion
- Natixis SA,
- Carl J. Shapiro,
- Royal Bank of Scotland Group PLC,
- BNP Paribas, BBVA,
- Man Group PLC,
- The Carl and Ruth Shapiro Family Foundation ($145 million invested),
- Yeshiva University ($100-$110 million),
- the Elie Wiesel Foundation ($37 million),
- The Jewish Federation of Greater Washington ($10 million),
- North Shore-Long Island Jewish Health System ($5.7 million)
Further, I personally know a few investors who were effected (either through my personal relationships with people or through my employment) and these people are beyond intelligent. So the idea that the 5 gems provided by Ms. Pilon could protect you, is simply ridiculous.
WSJ’S 5 Ways to Avoid Shady Advisors
Regardless, lets go through them:
- Be wary of guaranteed returns.
- Reputation and referrals aren’t enough
- Demand transparency
- Make sure you get a statement from your adviser’s firm, not your adviser
- Get it in writing
Guaranteed returns is absolutely something you should be scared of, but people should be remember that guaranting results is illegal so RUN if u are hearing guaranteed stock returns. However, if your advisor is spouting guaranteed returns on an annuity or similar product he or she may not be committing a crime and could be trying to keep you relatively safe. Just make sure you understand the advice being given before assuming your advisor is trying to get you involved in a scheme.
Next we have, “Reputation and referrals aren’t enough” How does she support this?
But don’t make a decision based on the good things you hear. Check credentials and verify certification with the Financial Industry Regulatory Authority (Finra), which issues licenses for financial advisers.
You should seek out other information, too. The U.S. Securities and Exchange Commission (sec.gov) lets you search Investment Adviser Public Disclosure forms online, which give information about advisers’ business affiliations and any disciplinary actions. Finra also has background information on approximately 660,000 currently registered brokers and 5,100 currently registered securities firms. The information on both the SEC and Finra sites are available at no cost to the public.
Ummm….someone correct me if I am wrong Madoff was clean until he turned himself in? Don’t be so untrustoworthy! Demand Transparency is very fair advice normally, but in the Madoff case, he told people they could walk if they wanted more info! How do you demand transparency? Has anyone ever looked at their statement? Granted it is not as confusing as lets say a Will, but come one those things are a pain! The writing part is pretty valid – you should have a meeting where the advisor and you talk about your goals and objectives and that info should be written.
Its not that Pilon’s recommendations are horrible, its just that the article struck a nerve because you can tell that it was written in haste, without any real research.