I recently read a particularly troubling story about an advisor who had stolen millions of dollars from his clients over many years. He had done so largely by forging client signatures on transfer documents. Many of the clients were single and elderly and so the advisor likely felt he would be less likely to be discovered.
The story reminded me of an experience when a local law firm asked if I would analyze the financial plan of one of their clients. As I reviewed the clients’ account, I discovered a couple of suspicious looking insurance policy statements. After some quick research I confirmed that the lady had literally spent over a million dollars on life insurance with companies that did not exist. The client was a widow, age 85, with no children. She thought she was buying large insurance policies to benefit her chosen charities. The agent was pocketing the money and creating the statements on his own computer, assuming when the client died no one would be around to discover his crime.
These examples teach at least two methods investors can use to help protect their accounts against fraud. In the first case, millions of dollars in cash was transferred out of the client accounts using forged documents. Though the clients may not have seen the forgery, they certainly could have noticed the money leaving their accounts. In order for fraud to occur, there has to be a movement of money or assets. One of the best ways to protect against this is to read your monthly statements. You may need help from a friend or family member but it is something all investors should make a habit of doing. While reading the statement, pay particular attention to any transfers out of the account. If you don’t recognize why it was done, call your advisor for an explanation. This simple procedure would have stopped the forgery fraud very early, yet it surprisingly went on for at least 10 years.
In the case of the 85-year-old widow, discovering this fraud would have been a little more challenging. In the age of the internet however, it is not too difficult to do a quick search of companies you invest in, especially when it involves money leaving your account as was the case here. If you don’t know how to do such a search, seek help from someone who does.
The good news in both of these cases is that the agents represented large, established investment firms that had policies and insurance in place to help protect their clients against fraud. In both cases the agents were sentenced, and the victims accounts were restored. Investors should ask their advisors what policies exist, and what insurance may be in place to protect their account in case of fraud or insolvency. The vast majority of financial advisors operate with integrity, but you want to know what your protections will be if you happen to choose one who does not.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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