NEast Philly would like to introduce our new column and our new columnist; every other Tuesday, Jim Heisler — a certified financial planner — will give financial advice surrounding a recent trend, news story or topic. Jim is a Holmesburg resident, and also has an office on Frankford Avenue in Holmesburg.
It seems as though every week there is a story about another Ponzi scheme involving a trusted financial advisor who has robbed a group of clients of their nest eggs. The latest is this week is the case of a South Jersey advisor who defrauded a group of clients of a significant, and yet undetermined, amount of money. This advisor has since died and his estate is being sued by a number of his former clients.
When you look at this case, the Bernie Madoff case and the myriad of other cases that have surfaced over the past couple years, a few key themes bubble up. First, in all these cases, the advisors had direct access and control of the clients’ investments. Second, in many of the cases — particularly the Madoff case — the advisors promised returns that, in hindsight, seemed too good to be true. Third, the advisors created fictitious statements misstating investment returns and account balances.
So, how can you protect yourself or your family from becoming a victim?
First, it is extremely important that your advisor not have direct access to your assets. The investments should always be held with a third party custodian. Some of the most popular are National Financial Services, Pershing, Schwab, TD Ameritade, among others. Assets held with some of the larger investment companies like Fidelity and Vanguard offer a similar layer of security.
Second, you should really understand what type of investments the advisor is recommending, and be wary of any guarantees unless they come as part of an investment held with an insurance company or a third party security issue, where detailed prospectuses are available for your review.
Finally, you should be sure to do a background check on the advisor you are selecting. If the advisor is affiliated with a broker-dealer you can check the status of his/her license with the Financial Industry Regulatory Authority. For those advisors who are Registered Investment Advisors you can check with your state’s Securities Commission, or if they are required to be federally registered, the Securities and Exchange Commission. If the advisor happens to be a Certified Financial Planner, you can also check to see if any complaints have been filed against he/she with the Certified Financial Planner Board of Standards.
The experience of the past two years has created an environment where investors have become very distrusting of advisors. With the wave of baby boomers moving into retirement, it is very important that investors understand the tools available to assist them in properly evaluating prospective advisors. If investors follow these steps, they stand a much better chance of forming a relationship with an ethical advisor they will be able to trust.
Jim Heisler is a Certified Financial Planner with Family Wealth Services in Holmesburg. You can read all his Financial Perspective columns here.
Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Family Wealth Services, LLC and Cambridge are not affiliated.
Jim Heisler, CFP®, CDFA™, CASL™
Family Wealth Services, LLC
8725 Frankford Avenue
Philadelphia, PA 19136