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How to Avoid Being Ripped Off by Your Financial Advisor

August 30, 2018

Two similar things happened this past Saturday. The NY Times had an article about a rip off by a brokerage firm and a friend mentioned that she suspected she was being ripped off by her investment advisor. It’s funny how coincidences crop up.

Most financial professionals are decent honest people. Regrettably some do not act in their clients’ best interest. This is evidenced by proposals to legislate that they do so and which is being fought by some trade organizations in the financial services industry.

I do not want to get into the myriad ways you can get ripped off or have funds stolen from you by the advisors you trust. What I will do here is discuss how to protect yourself from dishonest or unprofessional advisors. Regardless of your lack of knowledge and education you must take responsibility for how your investments are managed and what you invest in. The fault starts with your inattention, so here are some ways to be aware of what is going on.

  1. Make sure you receive monthly reports clearly showing how your investments did that month
  2. Look at the reports and see whether the value of your account increased or decreased taking into account deposits into the account or withdrawals from it
  3. If there was a decrease call your advisor to ask why
  4. If there was an increase, was the percentage increase consistent with last year’s percentage increase of your entire portfolio. If it wasn’t, call your advisor to ask why
  5. Look to see what was sold during the month and whether the sales were authorized by you, or logical based on your understanding of what the investment advisor is supposed to be doing for you
  6. If there are new investments, make sure you understand what they are, and how you can make money from them, and how losses, should they occur, will affect you; and whether the new investments can easily be liquidated without penalty if they need to be sold
  7. Ask yourself if the sales and purchases fall into your investment plan as previously determined between you and your investment advisor

These seven steps are that not onerous or time consuming and while you might think investing is “too complex” for you, I believe you must take these seven steps each month as a minimum in your oversight actions. Do them as soon as the statement arrives if mailed to you, or is available on line if that is how you get your account information. Abdicating responsibility can leave you open to theft, irreversible mistakes by the advisor and diminution of your investments that could adversely affect your lifestyle at a time in your life when you would be the most vulnerable to losses.

There is more to do; always more you can do; but the above represents seven pretty easy to do things than can be done after a brief instruction if you need that, from your investment advisor. After all, you are their customer and their job is to serve you. I truly believe an informed client is the best type of client to have.

Here are links to related blogs I suggest you read:

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