By Randy Hutchinson
President of the BBB of the Mid-South
Reprinted from The Jackson Sun
A Pennsylvania financial planner has been sentenced to 17 years in prison for defrauding his clients out of millions of dollars he used to pay for expensive automobiles, a dozen properties, and vacations to exotic locales. He convinced clients to put their life savings into investments he claimed were low risk, liquid, and guaranteed to produce a high return. In reality, they were high risk, illiquid “alternative investments,” including real estate investment trusts, business development companies, and oil and gas drilling companies.
Closer to home, a Memphis man was convicted of stealing over $1.3 million from a client who trusted him to invest her money after her husband’s death. He defrauded another client out of $410,000.
In bringing the action against the Pennsylvania man, the Acting U.S. Attorney said, “Unlike physical injuries that can heal in time, losing one’s life savings as one nears retirement is not something many can recover from.”
Other financial advisors may be honest, but not suited to your needs. I’ll offer advice on how to choose someone to manage your money and perhaps give you advice on other matters such as retirement or estate planning, but the most important tip is that you need to do a lot more due diligence than simply read a newspaper column on the subject.
You may see “financial planner,” “financial advisor”, “investment advisor,” “broker,” or other titles used almost interchangeably. In some cases, there are important distinctions in terms of the services they provide, their credentials, and their obligations to you. I’ll simply use “financial advisor” for purposes of this discussion.
Anyone can claim to be a financial advisor and may advertise an alphabet soup of initials signifying his credentials. Designations indicating a higher level of training and expertise include CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), and ChFC (Chartered Financial Consultant).
Consider interviewing more than one candidate to be your financial advisor and ask many questions, including:
- What’s your experience, particularly with people in similar circumstances to mine?
- Where did you go to school and what licenses and other credentials do you hold? Are you registered with the SEC, one or more states, or the Financial Industry Regulatory Authority? Verify the answers with the appropriate agency or credentialing body and check out her record with the BBB.
- How are you paid – on a fee basis, as a percentage of assets managed, or through commissions on products sold? There are pros and cons to each method depending on your financial situation.
- Have you ever been disciplined by a government regulator for unethical or improper conduct or been sued by a client who was not happy with your advice? Check his record and ask for an explanation of any issues that show up.
A good financial advisor will ask just as many questions about your goals, risk tolerance, and other factors that would influence your financial plan.
Don’t assume a financial advisor is trustworthy just because she goes to the same church or is a member of your Rotary Club. Ironically, I served on a nonprofit board with the convicted Memphis man many years ago. I think he was legit back then.