Can A Financial Advisor Steal Your Money?

Can A Financial Advisor Steal Your Money?

Financial Advisors are relied on to assist their clients in planning for the future. It is very important that they can be trusted and provide strong guidance in all areas, such as investing, income tax, insurance, retirement planning, amongst others.

Since they work on commission, it makes sense for Financial Advisors to assist their clients in generating good returns on investments and both sides will benefit from this. However, there are professionals and practices who are intent on cheating their clients out of their money and there are ways to ensure this is avoided. Clients should validate the Financial Advisor’s credentials, background and ethics record before moving forward with them.

Can a financial advisor steal your money?

Here are some key warning signs which the client should look out for:

1. Adjoined names: If the Financial Advisor is approved to adjoin their name with their client on the title of their investment account, this provides unrestricted authority in the use of the client’s fund at the Financial Advisor’s own discretion. The client should ensure that their name only appears on all statements that they receive from the custodian. In the UK, the Financial Conduct Authority (FCA) will enforce disciplinary action on the Financial Advisor if there is a violation of their code of ethics.

2. Excessive trading: If the client’s financial statements show additional trading with increased transactions but declined value, the Financial Advisor might be generating their own commissions. It is advisable for the client to open a wrap account where a flat fee will be charged in certain periods rather than granting one large fee based on trade transactions.

3. Fraudulent scams: Any investments offered to the client with a high return and low risk, but overall show no increase in returns, should be avoided. The investment might be tied to a Ponzi scheme which means the Financial Advisor is generating returns for their former investors by using their current investors’ funds. These schemes can be a part of affinity fraud and scams that target groups based on age, religion or race. Clients must confirm that their Financial Advisors and their firms are registered with the FCA to avoid any doubt of fraudulence action.

4. Avoid granting power of attorney: Clients should never grant power of attorney to their Financial Advisors. While they might suggest this as “taking on the burden” of the client’s account and will act on the client’s behalf, making their own decisions which involve the investments might not be in the client’s best interest. The Financial Adviser could make personal transfers of the client’s money and, though embezzlement is illegal, it would be costly and timely to settle at a later stage. This a huge risk for the safety of the client’s assets so it should be avoided. If in a situation where it is necessary to grant power of attorney, the client must stipulate that the Financial Advisor is only permitted to trade their securities without notification, but can never move assets or draw returns from the client’s original accounts.

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