One of the biggest fears that people have, when they are looking for a financial advisor, is this: “Is it truly impossible for an advisor to say wire themselves a few million dollars from a client’s account?” I’m going to answer that question in this blog about financial advisors stealing money and how to protect yourself.
But before we get into it…
Look, there are alot of schmucks out there hawking crap products disguised as financial advice.
Don’t be fooled!
I’m not a lawyer – so please don’t interpret anything I say here as legal advice. Do your own diligence when you are seeking financial advice. But here are some resources you may want to grab before you read the blog.
- Please subscribe to my newsletter to receive updates that raise awareness of consumer financial issues. It will teach you how to avoid shenanigans, crap products, and other scummy practices that are unfortunately common in financial advice.
- I wrote a bunch of consumer advocacy blogs here to protect people from all the BS.
- I was recently featured in a MarketWatch article about how to find a good financial advisor. Read it here.
And now let’s get on with it!
How can I stop a financial advisor from stealing my money?
#1 Understand the terms in the Investment Advisory Agreement
Check out FINRA’s explanation of discretionary authority.
When you first hire a financial advisor, in the Investment Advisory Agreement, as well as the advisor’s ADV, it will outline how the advisor works with clients. Some advisors want full discretionary authority which allows them way more liberties than limited discretionary authority. Another option is “non-discretionary authority” whereby you have final say on everything, all trades and transactions. Learn what all these terms mean.
Ask your lawyer if you need to, but make this decision wisely. It affects how much control and freedom they have with your money and the level to which they can do things without your consent. Definitions on the internet are one thing, and what it actually says in the agreement is another.
If you are worried about a financial advisor stealing your money, consider spelling out any restrictions in your agreement with them. You could say something like, I don’t want you being able to enact any wire transfers or to transfer any money out, and the custodian will enforce this restriction. You could say something like that and see if they go for it.
Here’s how it usually goes in terms of advisors moving money between accounts. Clients, as a matter of course, normally have to authorize connections between their own accounts for their advisors to move money.
- The advisor can not authorize a client’s account to be linked to another account. The client must make this designation.
- An advisor can not redirect funds from a client’s account to an account that the client did not authorize funds to be directed to.
- The custodian, who holds the client’s accounts, notifies the client when any transfers of money happen.
You should always pick an advisor who has a third-party custodian. Most advisors work with well-known custodians such as Charles Schwab, Fidelity, or Altruist. If the advisor “self-custodies” and does not use a third-party custodian, it may open up the opportunity for shenanigans to occur. The latter is not the preferred scenario.
#2 Consider Advice-Only Planning
The other thing you could do would be to hire an advisor to give you advice but not manage the portfolio. They produce a set of recommendations and email them to you, but they never take action – you do.
There are many advisors who work with clients this way. It is called advice-only planning.
As a side note, please understand that nothing in this blog is an endorsement of any particular company. Please conduct your own due diligence and come to your own decision. Also, I am under no obligation to update any financial advisor lists, and the conditions of service offered by these firms may change over time without being reflected here. I have no formalized business relationship with any of the firms listed on this low fee financial advisor list.
#3 Find a good, honest financial advisor
Get a good, honest financial advisor and avoid the grifters. Know how to read an advisor’s ADV and view their history of any past shenanigans. A friend of ours, WE family offices, wrote a paper on how to tell one financial advisor from the next. We hope you’ll read it and learn how to cut through the clutter!
Also, here are some tips about how to check out a financial advisor’s Form ADV – which you should do! You need to understand an advisor’s business model and regulatory history to avoid doing business with a scoundrel.
Some general tips for finding a financial advisor you can trust:
- Clear, transparent pricing that you can understand
- Clean regulatory history – no history of disclosures. Check their ADV (as we explain in video above)
- Minimal use of complex, high fee products such as direct indexing, ESG funds, etc.
- Asks insightful questions that indicate a genuine care for you and regard for your needs instead of sales pitching
- Is obligated to act in your best interests 100% of the time – not just sometimes
- Can clearly describe a thorough process for servicing you that does not solely involve products
- Provides an overall plan for your entire financial life, not just your money
- Thinks long term strategically and short term tactically
- States fees and services clearly on website and other marketing materials where needed
- Responsive to your questions / does not refuse to answer any of your questions for any reason
- Demonstrates fairness, logic, transparency, clarity, and advocacy for the consumer in their demeanor
- Does not make promissory statements that seem too good to be true or groundless
- Does not brag about placement on top advisor lists (which are all BS) or other accolades
You can potentially find high quality advisors through resources such as the following:
Institute for the Fiduciary Standard
Again, do your own research as nothing in these lists is a recommendation or endorsement of any one advisor.
#4 Understand the “make whole” language
Here is the Charles Schwab security guarantee, just as an example. I am assuming most advisor firms had something similar. I believe it wouldn’t cover what happens if an advisor wires money to themselves, because the advisor would be an authorized party on the account. But like I said, I’m not a lawyer.
Whatever firm you go with, review all their “make whole” language and find out – and ask a lawyer if you need guidance on deciphering all this.
Protect yourself from the financial services industry
There are alot of scumbag financial advisors out there. Let me leave you with these final resources to help you find an honest financial advisor who won’t steal your money:
#1
If you have any questions as you search for a financial advisors, send me a note. I am sick of consumers getting a raw deal and would be happy to hear your questions.
#2
I have a newsletter entirely devoted to advocacy for the consumer. The goal is to educate people so they can steer clear of the traps the financial services industry sets for them. Please subscribe to my newsletter to receive these updates so you can avoid being taken advantage of by shenanigans.
Be safe!
-Sara G
Disclosures
Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use or mention in any of its content, or the success of any program it may mention in any of its content. Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. I want to be clear that nothing in this podcast or blog can be interpreted as an investment recommendation of any type, or an endorsement of any particular person or their services. The opinions expressed herein do not necessarily represent the views of Sara Grillo or Grillo Investment Management, LLC. Also, nothing in this podcast or blog can be interpreted as legal or compliance advice. For advise on such matters, contact a legal or compliance advisor. Any similarities to persons deceased or alive are entirely coincidental.
