• Michael Kostelnik

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 that lose a portion of their wealth. When it doesn't make the news, and dollar amounts are smaller, it is often ordinary people that 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 give you a few questions to ask any advisor you may choose to 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 that your advisor's office won't be closed one day because he's on a beach with your money.  


As odd as it might sound, it is actually more challenging to commit Madoff type fraud when you work 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 in his next vacation. 


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


My client's money is at TD Ameritrade. 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.


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


At Family Life Financial Planning, we use 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 either has to 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 address and the prior address, 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 be handling 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 make sure they cannot execute third party withdrawals; withdraws 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?


If you can pick the check-up from your advisor's office, this is a red flag. It means they either can have withdraws sent to them or are the ones holding your money. The exception is with large wirehouse companies like MorganStanley 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 MorganStanley and Merrill Lynch.


These questions will help you protect your money. It won't promise you will not lose money in the market, but they 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 for 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 has at all times.


Lastly, you should check the account monthly and look over the transaction history for anything that looks suspicious.  

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michael@saveforyourfamily.com   |   440-490-7526

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