How Safe is my Money?

Every few years, it happens. A Bernie Madoff (I know, the name gives it away) type makes big headlines for stealing millions of dollars from his clients. When it makes the news, it is usually very wealthy people who lose some of their wealth. When it doesn’t make the news and dollar amounts are smaller, ordinary people often lose everything.

First, I want to explain why your money is safe with Family Life Financial Planning. At the end of the article, I will ask you a few questions to ask any advisor you may hire.

Knowing your money is safe should be your priority when investing. This doesn’t mean you won’t have your accounts go down in value, but your advisor’s office won’t be closed one day because he’s on the beach with your money.

As odd as it might sound, it is more challenging to commit Madoff-type fraud when working with regular clients. Madoff was a hedge fund manager, not a financial advisor. Since he was a hedge fund manager, he had direct access to his client’s funds. They gave his company the money, and he invested it as he saw fit, sometimes even on his next vacation.

These investments are not available for the average person you pass on the street. You will typically work with a large mutual fund, insurance, or brokerage firm. Meaning you won’t be writing checks to your investment advisor or his company.

My client’s money is at Schwab. They are a brokerage firm that processes transactions for my clients and me. When clients put money into the account, you write a check directly to TD Ameritrade. I can send the check to TD Ameritrade, or you can, but either way, your money will never be in one of my accounts.

As the advisor, TD Ameritrade allows me to see your account and execute trades when opening the account. My clients sign a limited power of attorney that will enable me to debit fees from the account but not make any other withdrawals.

Family Life Financial Planning uses an electronic signature process that prevents tampering with your documents once you have signed them. There is no risk of changing materials after you submit your forms. With paper, after your advisor takes the forms, they can change information, such as your address.

If you want to take money out, it must either be via ACH to a bank account in your name or mailed to your house. If your address is ever changed, a notice is sent to the new and prior addresses, preventing an advisor from changing the mailing address before requesting checks.

You cannot even pick up a check from me. Since Family Life Financial Planning does not have direct access to your money, the checks must come from TD Ameritrade and go directly to you.

So you can see, we take your security seriously. Here are some questions you should ask your advisor;

Will your firm handle my money, or will it be in a third-party, established brokerage firm?

You want to make sure they are not directly controlling your money. You want your account with a reputable brokerage firm or directly with an established mutual fund company.

What transactions and activities will you be authorized to make on my behalf? What will need a signature, and what will not?

You want to ensure they cannot execute third-party withdrawals that go to someone other than yourself.

If I take withdrawals, what are my options for receiving the money? Would I be able to pick up a check from you?

This is a red flag if you can pick up the check-up from your advisor’s office. It means they either can have withdrawals sent to them or hold your money. The exception is with large wirehouse companies like Morgan Stanley and Merrill Lynch.

When I deposit money into my account, who do I make the check payable?

You want to avoid making deposits to your account by writing checks to your advisor or his firm. Again, the exception is in the event of a large, well-established firm like Morgan Stanley and Merrill Lynch.

These questions will help you protect your money. It won’t promise you will not lose money in the market, but it will help prevent someone from stealing your money. Sadly, criminals are always coming up with new ideas, so please stay on the lookout.

EXTRA TIP

One well-known scam artist made false statements and sent them to clients. A way to avoid this is to sign up to see your account online. Make sure you sign up to view your account at the website of the brokerage firm your advisor uses.

My clients have access to my client portal and the TD Ameritrade portal. I recommend they register for both. This way, they will see what I present them with and precisely what TD Ameritrade always has.

Lastly, you should check the account monthly and review the transaction history for anything suspicious.