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How to Keep Your Money Safe #madoff #ponzi

By September 20, 2019August 30th, 2023No Comments

I saw an article recently saying that a lot of small advisory firms don’t have a backstop for if a financial advisor does something wrong.

The article suggested that there should be rules for more errors and omissions insurance for advisors. The reason being that a lot of advisory firms are small businesses that don’t have money to handle financial claims against them.

The article interviewed some clients of advisors who lost money through Ponzi schemes or bad investments.

I guess the idea of the article is that if you are cheated by an advisor at a big bank, brokerage firm or insurance company, the big firm will be able to handle and pay your claim, even if the individual advisor doesn’t have the money to pay it. Whereas if you are cheated by a solo advisor working for himself, he probably doesn’t have that much money and should have insurance.

There are a couple of points I’d like to make. First, yes, I think advisors should have a lot of insurance. I carry a lot. The second point is that that coverage is for Errors and Omissions of the advisor and the firm. It doesn’t insure you against crimes the advisor commits. If the advisor steals from you, whether at big bank or solo shop, the insurance coverage isn’t going to help.

If you want to make sure that your advisor is not going to steal from you, it’s actually pretty easy.

First, don’t write a check out to your advisor. Make it out to the custodian. So the check should be made out to Schwab, Vanguard, or some other big custodian you’ve heard of.

If your advisor says, he’s starting a new fund, decline. Say “no thanks.” If you really want to invest in the fund (and you shouldn’t), wait until the fund is up and registered, and you can buy it through the big-name custodian.

Don’t write a check out to your advisor’s name or the name of their firm.

Use a well-known custodian and use a limited power of attorney with the well-known custodian’s forms and make the check payable to the well-known custodian. Don’t make the check out to the advisor. It’s really that simple.

Recently my friend Greg Phelps wrote a terrific article called How to find a financial advisor you can trust in 5 steps.” This article is chock-full of solid advice when trying to choose a trustworthy adviser.

My name is Mike Garry, and my company is Yardley Wealth Management, LLC. We are a fiduciary, fee-only financial planning, and wealth management firm in Newtown, Pennsylvania. (That’s in Bucks County).

Our law firm is Yardley Estate Planning, LLC and is in the same place. We only do Estate Planning work and I am licensed in Pennsylvania and New Jersey.

If you’d like to talk about this or anything else, please reach out: 267-573-1019, [email protected] or @michaeljgarry

If you’d prefer to watch videos, click on the hyperlinks for the: Yardley Wealth Management and Yardley Estate Planning YouTube channels.

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Michael Garry Yardley Wealth Management

Author Michael Garry Yardley Wealth Management

Michael Garry is a CERTIFIED FINANCIAL PLANNER™ practitioner and a NAPFA-registered Financial Advisor. He is a member of the National Association of Personal Financial Advisors (NAPFA) and the Financial Planning Association (FPA).

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