The recent events involving a local investment advisor and his clients brought to mind a subject I have written about a number of times in the past. Being knowledgeable about your advisor is just as important as your advisor knowing about you. An advisor should serve her/his clients under what’s known as the fiduciary standard, which requires the advisor to act in the best interest of the client in all he/she does in service to the client. And I’m proud to say most do.
However, you the client bear some responsibility for protecting your own best interests when hiring and using the services of a financial professional. Here are some things every user of financial services should know/do.
You should exercise due diligence and check your prospective advisor’s record for any complaints or sanctions at www.adviserinfo.sec.gov.
You should check if your advisor has a third party relationship with a custodian. This is the entity that actually holds your funds. You should receive statements and other documents about your financial assets from the custodian.
While you may give your advisor authority to direct what investment s can be bought or sold out of your account, they should not have authority to take funds out of your account. This is called a limited power of attorney. Your advisor should only be able to direct funds from your account to be sent to you.
Similarly, when you make deposits into your account, you should make the check payable to the custodian, not your advisor’s firm. If that happens, your advisor can and should endorse it to the custodian for deposit into your account. Review your cancelled check to make sure where it was deposited.
Some advisors use unlisted investments, which can be very risky. You should be able to look up all the securities that are recommended for your account on any of the financial websites. Listed securities are easily valued, and most are easily converted to cash (or sold).
We all want to believe the best about professionals we do business with and, for the most part, we live and work in a generally honest society. However, there will always be those people in any profession who, for one reason or another, are not looking out for the best interest of their clients. By doing your due diligence before entering into a relationship with a financial advisor, you can lessen your risk of being taken advantage of and have peace of mind that your advisor is making the best decisions for your needs.