Skip to main content

Paperwork that Could Clue You into a Scam

Today I read an article about a financial adviser whose husband, also a financial adviser, had been scamming his clients for over 20 years and she never knew! Of course, looking back she realized there were some red flags that should have alerted her to the situation.  These are the three things she observed:
  • Red Flag 1: His clients' portfolios enjoyed consistently good returns even when the market was performing poorly.(This is not impossible but very unlikely to occur).
  • Red Flag 2: He did not provide his clients with detailed trade confirmations for buys or sells.
  • Red Flag 3: He instructed his clients to make checks deposited to their accounts for investments payable to HIS firm rather than the custodian firm that actually held the investments. I will explain more about the roles of advisers, custodians and brokerage firms in future posts.

In an article on CBS MoneyWatch, she offers advice on what to do if you spot any of these red flags with your adviser. Click here to read the article (keep in mind that in this article she creates more questions than she answers, quite possibly as a way to promote the sales of her book.  You can learn more about the terms and concepts she discusses through free research online).

I want to address red flag 2, no detailed trade confirmations provided to the clients for trades.  When you or your adviser places trades in your investment account (brokerage, mutual fund, IRA, etc.), you will receive a trade confirmation of the transaction detailing such things as the name of the investment you purchased or sold, quantity of shares or bonds, price paid or received per share/bond, commission paid, etc. A trade confirmation is essential for responsible investing for two reasons:

  1. Verification that the broker has filled your order according to your instructions - carefully review the document for accuracy and report any errors to your adviser as soon as possible so corrections can be made. If you wait to long to point out irregularities in the transaction, you could lose the ability to rectify the situation.
  2. Documentation for taxes and gains/losses tracking - account statements do not contain sufficient details to support your declaration of gains or losses.  The IRS requires a valid trade confirmation as proof of the buy or sell transaction.  This confirmation can be on paper or electronic (a method many brokers now utilize to minimize paperwork you must maintain.  Be sure you keep a backup of the electronic files). 
For those of you not familiar with my philosophy of personal finance, I believe we are all responsible for our own money decisions.  Anyone who takes responsibility for their financial well-being understands that attention to detail, education and a bit of skepticism go a long way to putting one on the path to personal finance success.  If something seems too good to be true...it is!  If something seems a bit off or suspicious...it is!  If a financial adviser's style or recommendations rub you the wrong way...you are probably wise to find a new adviser.

Comments

Post a Comment

Popular posts from this blog

Get Organized to Save Money

How "Being Organized" can save you money... Taking a small amount of time up front to get organized can save you time and money.  Here are a few simply steps you can take today to keep more money in your pocket. Set up autopilot for your bills -  Take advantage of your bank's online bill pay service to automatically send payments for your monthly recurring charges.  Set it and forget it!  Taking a few minutes to set up auto bill pay will pay off by preventing late charges and finance charges due to missed payments. Take inventory - You can avoid buying duplicate items when you know what you and have and where it is located.  Take a quick inventory  your pantry, the medicine cabinet, laundry room, and your office before shopping (online or brick-and-mortar). Stock up on consumables - You will always need shampoo, toothpaste, laundry soap, etc. so buy these items that get used up in bulk when on sale.  Of course, don't go overboard.  Buy what you
Post a Comment
Read more

Eating Seasonal Foods - Good for your Body, Good for your Wallet!

Eating foods in season is supportive of our well being.  For example, in the summer Mother Nature provides a bounty of high-water-content foods to help us stay hydrated...water melon, cucumber, tomatoes all add refreshment to hot days. In addition to supporting your physical well being seasonal produce treats are wallets with kindness.  Local in-season produce doesn't have to travel as far as out-of-season fruits and veggies which often travel thousands of miles from other countries.  Combine the lower transportation costs with the abundance of the local in-season crops and you get lower prices.  How do you know what's in season?  Two ways: Prices in the store - when the grocery store offers strawberries at 2 baskets for $1.00 or tomatoes at $1.29 per pound you are looking at in-season foods! Visit this website - CUESA which shows you the produce in season and provides recipes for incorporating these physically and fiscally health goods into your diet What's yo
Post a Comment
Read more

Why should I get my credit report annually?

Under the Fair Credit Reporting Act you are entitled to a free copy of your credit report once every 12 months from each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion. If you want to order your free annual credit report online, there is only one authorized website, www.annualcreditreport.com. The Federal Trade Commission has a link on their website ( click here to access the FTC section on free credit reports ). So why should you get your credit reports annually? To detect identity theft - Your report will show you any new accounts opened in your name as well as who has been checking your credit. If an account appears on the report that you did not open or if a company (especially a retail store where you have not applied for financing) inquires into your creditworthiness, you can take action to prevent potential identity theft from taking place or at least minimize the impact. Uncover errors - The reporting agencies make mistakes, trust me!
2 comments
Read more