I had a friend text me this story about Kevin Garnett, a high-profile athlete or entertainer who has come out on the wrong end of some horrible financial advice (see here and here).  Within the text, my friend asked, “How does this happen to people?” My response, as long as there are people with money (large or small), there will likely be Ponzi schemes and scams that try to separate people from their financial wealth.

These schemes are a topic that I get sick of reading about for several reasons.

1. It is an awful feeling to work hard and save money for someone to take it all away.  I feel bad for the victims, but there are ways for people to protect themselves, which we will touch on below.
2. It continues to give the financial services industry that I work within a black eye.  While deserved when crimes are committed, it can make it difficult to overcome certain unjust stereotypes for those of us who are trying to help people.
3. I firmly believe that some people truly need wealth management help but choose not to because they are afraid of being taken advantage of.  I have seen this firsthand with people I have spoken to over the last 20 years.  In cases such as these, everyone loses.

Vetting a Potential Advisor

Even though a potential adviser may come to you through a trusted resource or friend, you are still responsible for vetting the potential adviser yourself.  After all, it is still your financial life.  When going through the vetting process of a potential adviser, beware of the following:  

• Flattery, whether extreme or mild, be very perceptive around someone who is telling you exactly what you want to hear to have you hand over your money;
• Guarantees, if something appears too good to be true, it likely is.  There are no guarantees in life, especially in the world of investing;
• Complexities, some people/advisers want you to believe that investing is too complicated for a layperson to understand.  It’s not.  If an investment cannot be explained in a few bullet points/sentences, then it is likely dangerous for both your actual and financial health;
• Defensiveness, if the potential advisor becomes defensive, agitated, or combative when you ask questions surrounding investment style or financial management process, this could highlight underlying issues/concerns.

Four Points to Help Protect Your Family

While not foolproof, here are a few points that could help you protect yourself:

• Make sure that your spouse or partner meets with your potential adviser at least once before you move forward.  If you are single, invite a trusted friend to come along with you.  An unbiased viewpoint may be able to alert you to details that you have overlooked;
• Request a meeting with your adviser annually or whenever you need further explanation regarding your investments or strategy.  A trusted adviser should always be able to respond to your needs and questions within a reasonable time frame.  If you feel that your adviser is avoiding you, that could be a red flag;
• Understand how much you are paying in fees and how those fees are being deducted from your accounts;
• Review your financial statements consistently (quarterly should be sufficient), and look for fees or transactions that seem out of the ordinary, investments that you are not familiar with, or do not align with your financial plan.

Knowing your values, and what is important to you, how you decide to manage your finances says a lot about who you are.  The most important aspect of having an adviser is maintaining an open and trusting relationship.  You should feel that your adviser listens to you, has your best interests in mind, and empowers you to make better financial decisions.

For questions about wealth planning, portfolio management, or tax-related topics, do not hesitate to contact me to find out what options may be best for your family.