Can A Financial Advisor Steal Your Money?

When you entrust your wealth to a financial advisor, the last thing you expect is for them to betray your trust and steal from you.

However, financial advisor theft is a prevalent concern that can have devastating consequences if you don’t know what to look for.

In the guide below, we'll throw out a few financial advisor red flags and show you how to choose a trustworthy advisor to safeguard your finances.

How to Avoid Financial Advisor Theft

When it comes to entrusting a financial advisor with your money, understanding the potential risks is crucial. Here are a couple of tips to prevent financial advisor theft.

1. Understand Fiduciary Duty

Working with a fiduciary advisor can significantly lower the potential risk of financial misconduct.

Fiduciary advisors are legally required to act in your best interest, so there's a much higher level of accountability for their actions.

Meanwhile, non-fiduciary advisors aren't always held to the same standard, potentially posing a greater risk of conflicts of interest and unethical behavior. Choosing a fiduciary advisor can provide an added layer of protection against financial misconduct.

2. Do Your Due Diligence?

Selecting a trustworthy financial advisor is the first line of defense in safeguarding your finances. When you're evaluating potential advisors, it's essential to thoroughly research their credentials, experience, and industry reputation beyond their fiduciary duty.

Use FINRA's Broker Check tool to vet advisors. You can also talk to your friends, family, and coworkers, and look online for client reviews and testimonials to gauge an advisor's track record in delivering reliable and ethical financial guidance.

Avoid advisors who promise guaranteed returns or engage in practices that seem too good to be true, since this could be indicative of potential misconduct.

2. Carefully Consider Giving Direct Access to Your Funds

Giving a financial advisor direct access to your funds can have significant implications. Most reputable advisors would never take possession of your money, but providing direct access can make it easier for unscrupulous advisors to misuse or steal funds.

It's crucial to carefully consider the potential risks and closely monitor any arrangements that involve granting direct access to funds.

Being vigilant about how your funds are managed can play a vital role in safeguarding against potential financial misconduct.

2. Keep Monitoring and Communication Regular

Ongoing communication with your advisor is key to maintaining a transparent and collaborative relationship.

You should regularly review your financial accounts and statements to identify any irregularities or unauthorized transactions and promptly address any concerns or discrepancies with your advisor to ensure it gets resolved swiftly.

By taking these proactive steps, you can protect your assets and build a solid partnership with your financial advisor.

3. Seek Legal Recourse and Support

Reporting suspected misconduct and seeking restitution can be essential steps in protecting your financial interests.

If you believe a financial advisor has engaged in misconduct or stolen money, it's important to report the issue promptly. You can begin by contacting regulatory authorities such as the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA) to file a complaint.

Additionally, consulting with a legal professional specializing in financial law can help you evaluate the options available for recovering lost funds and initiating legal proceedings if necessary.

10 Red Flags to Keep in Mind

When you're working with a financial advisor, it's important to know the signs of potential misconduct.

Here are some red flags to watch out for:

1. Missing credentials: Look for specific credentials, such as Certified Financial Planner (CFP), Registered Investment Adviser (RIA), or other FINRA-recognized designations that indicate your advisor has relevant credentials to manage your finances. Anyone can call themselves an advisor, but not everyone is registered with industry organizations.
2. Unexplained transactions: Watch out for unauthorized withdrawals or transfers from your investment accounts by your financial advisor. If you see any transactions that you didn't approve or weren't informed about, it's a major red flag.
3. Lack of transparency: If your financial advisor is evasive or hesitant to provide clear and detailed information about your investments or financial activities, it could be a sign that they're trying to conceal illicit actions.
4. Pushing risky investments: Be wary if your advisor consistently pushes you to invest in high-risk or obscure products without thoroughly explaining the risks and potential returns. This behavior could indicate they're more interested in their own gains than your financial well-being or that they’re ignoring your risk tolerance.
5. Missing account statements: If you notice that you're not receiving regular statements or communications regarding your accounts and investments, it could signal that your advisor is trying to hide unauthorized activities or fabricate information.
6. Conflicts of interest: Pay attention to any conflicts of interest, such as your advisor promoting specific products or services that seem to benefit them more than you. This could indicate that they're putting their own interests ahead of yours.
7. Changes in contact information: If your advisor frequently changes their contact information without providing a valid reason or fails to keep you informed about their whereabouts, it could be a tactic to avoid being held accountable for fraudulent activities.
8. Gut feeling: Trust your instincts. If something doesn't feel right or you have a lingering sense of unease about your advisor's actions or advice, it's essential to investigate further and potentially seek a second opinion from another financial professional. Don't ignore your intuition when it comes to your financial security.
9. Commingling: Commingling occurs when an advisor mixes a client's funds with their own, leading to a lack of transparency in financial transactions.
10. Churning: Churning involves excessive buying and selling of securities in a client's account to generate commissions for the advisor rather than to benefit the client. These practices can erode your investment returns and are clear red flags of unethical behavior.

Frequently Asked Questions

How do you tell if your financial advisor is ripping you off?

Here are a few of the biggest red flags that your advisor could be ripping you off:

• Frequent trades
• Lack of transparency
• Difficulty contacting your advisor
• Boilerplate financial advice
• Big promises with little proof

These red flags are far from exhaustive, so it’s a good idea to trust your gut, ask thorough questions, and vet your financial advisor before trusting them with your funds.

Is it possible for a financial advisor to embezzle funds from clients?

Yes, it is possible for a financial advisor to embezzle funds from clients. You can prevent this by appointing a third-party custodian or limiting your services to investment advice only. With this option, it would be up to you to execute trades and keep track of your financial products, but you’d maintain more control.

Is there a way to protect my investments from dishonest financial advisors?

You can protect your investments from dishonest financial advisors by carefully vetting every single professional you plan to involve in your finances. Use the SEC’s Action Look Up tool and FINRA’s database of disciplinary actions to do an unofficial background check on your advisor’s credentials.

What steps should I take if I suspect my financial advisor has taken money from my account without permission?

If you suspect your financial advisor has taken money from your account without permission, your first step should be to contact a fraud lawyer. Many lawyers offer free consults, or they’re willing to work on contingency to see if they’re the right fit for your case.

Key Takeaways

While the majority of advisors are reputable and trustworthy, the unfortunate reality is that there are unscrupulous individuals in every industry, including finance.

By staying engaged in your financial decisions and remaining vigilant, you can mitigate the risk of falling victim to fraud. Remember, it's your money and your future at stake, so don't hesitate to question and verify any actions taken by your advisor.

Take charge of your financial well-being and seek professional guidance from fiduciary advisors who prioritize your best interests.

Keep Reading: Should I use a Financial Advisor or Do It Myself?