NEW YORK (MainStreet) — Put them in a tie and in some cushy offices downtown, and all financial advisors look legit. But brokers gone bad can commit some astoundingly despicable crimes. And they don't all make national headlines. Take for example the Schwab financial advisor in Melbourne, Fla. For six months this year, he stole about $1 million in office supplies from the brokerage firm's branch office. Not cash or client money – office supplies and equipment.
By using the company's order system, the broker accumulated supplies and then apparently sold the items for pure profit. A temporary lapse in judgment – or a desperate attempt to smooth over a financial rough patch? Not likely. The broker had previously been charged with conspiracy to traffic prescription painkillers. As the old saying goes, "A man will do what a man has done."
That's why it's more important than ever to do a thorough background check on any financial advisor you are considering to assist in your financial matters. A report on the employment and disciplinary history of any registered representative can be found on FINRA's Broker Check.
The fact is, even notorious Ponzi swindler Bernie Madoff looked trustworthy. A charming personality, social connections and a standing in the community provide no clue to the ethical standards of a financial advisor. One advisor, active with his community's Little League program, sponsor of his local university's game broadcasts and winner of the a "Recent Graduate Award for Excellence in Professional Achievement," was a Ponzi schemer in the highest degree. He is being sued, with possible federal charges pending, with swindling $400,000 from local blue collar workers and his own family members – including nearly $200,000 from his mother.
Corrupt financial consultants find many ways to separate clients from their money, including a Texas advisor, who simply closed some of her clients' accounts and emptied the balances. Some of the accounts were inactive, so it took a while for this fraud to be discovered. There is even a case of a Ponzi scheme investing in another Ponzi scheme. A former MIT professor and his son told investors they had developed an investment algorithm that would guarantee returns of 20% or more. Instead they placed the money in outside investments, including the bogus Madoff investment fund.
In addition to the BrokerCheck system, you can conduct due-diligence on your advisor by:
- Verifying that he is a Certified Financial Planner. If so, you'll find your advisor listed in the planner search tool at CFP.net. The report will let you know if the person's CFP certification is valid and whether he has been disciplined publicly by the CFP board or filed for bankruptcy in the past ten years.
- Reviewing the record of a registered investment advisor or firm by accessing the Security and Exchange Commission's (SEC) public disclosure website.
- And checking the North American Securities Administrators Association's (NASAA) website for additional information directly from your state regarding advisors, who are regulated on a state level, rather than by the SEC.
--Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick