How to Avoid Falling Victim to Another Madoff

Investments September 15, 2019

Getting a financial advisor isn’t an issue. Getting one who is actually an expert and an honest financial advisor is the major issue. According to a Certified Financial Planner Board of Standards study released in 2012, approximately 19 percent of financial advisors had been pronounced guilty of being with fraudulent intent or even telling lies to their clients.

Furthermore, about 7 percent of all the financial advisors were subject to disciplinary actions at regular intervals within consecutive years and 40 percent of those advisers whose employments were terminated proceeded to work with a different firm within a year.

Getting a financial advisor isn’t an issue, the major issue is getting one who is actually honest

An author and Certified Financial Planner, Bill Francavilla, shares some helpful tips about the ideal ways to spot those who are crooked financial advisors. He also offered the following tips for people looking to hire a financial advisor to help in managing their money.

Do Not Concentrate Solely On Referrals

A good number of customers end up with the financial advisors they got to know about through referrals either from colleagues or from friends. However, there is still a caveat and it doesn’t matter that it’s your friend who vouched for any such advisor. Francavilla said a lot of Bernie Madoff’s clients were gotten through a referral from friends. A lot of them vouched for Bernie noting that he is the best financial advisor and one with consistent returns but it later turned out that those referrals were not so accurate. It is important to note that the issue isn’t that Francavilla is against going for referrals altogether, he only enjoins potential customers to ensure that they carry out due diligence rather than simply just putting in their money based on a friend’s opinion.

Prospective customers should ensure that they carry out due diligence rather simply just putting in their money based on a friend’s opinion.

Be Inquisitive

Every good financial advisor looking to work with you should ordinarily ask you questions the first time you meet so they can determine what your goals and needs are. Francavilla is of the opinion that the conversation shouldn’t go just one way. He said you should ask your advisor several questions to know their opinion about investments, among other relevant topics. A consumer should make it a point of call to ask the financial advisor as many questions as the financial advisor poses to him or her. There are different topics you can ask questions about, such as their level of experience, i.e. how long they have stayed with their current firm and the duration of their engagement in financial consultancy.

A consumer should make it a point of call to ask the financial advisor as many questions as the financial advisor poses to him or her

You could also ask questions about their credentials. Francavilla is of the opinion that credential signifies that the person takes financial consultancy seriously and has the desire to keep their game in check. It doesn’t just end there, Francavilla added that he always wants to learn about their approach, whether the person is a perma-bull or a perma-bear and also learn about how they approach other topics.

Stay Away From The Salesmen And The Newbies

Francavilla mentioned that while someone who is likely going to be a Bernie Madoff wouldn’t advertise his or her intention to be fraudulent, it is important that clients take some protective measures such as steering clear of some specific categories of advisors. The first set of advisors to avoid are those who are neophytes and that refers to those new financial advisors who are barely weeks out of their training.

Francavilla mentioned that the only instance where he would consider using such a person is if such person has an affiliation with a team made up of experienced advisors. Also, he advises potential clients to be careful of the salesman kind of financial advisor.

He said the interest of the salesman isn’t about the client or solving the clients’ problems. The salesman is more about selling than anything else. He advised that if you ever decide to consider such person, it is better to keep your money at home as everyone is on the lookout for financial advisory that is solution-based and not one which is sales-based.