Does your Advisor have a Questionable Past?

When interviewing a financial advisor, there are two steps that most fail to make. First is to get a few names and numbers of clients to call and ask questions. Of course, this isn’t always fool-proof. An advisor is always going to hand you names and numbers of raving fans.

Second is to check up on an advisor’s past. Wouldn’t you like to know if there was any questionable conduct or even criminal activity?

The Financial Industry Regulatory Authority just sent out their quarterly report to the financial advisory community highlighting disciplinary action taken this past quarter against a handful of financial advisors.

Here are a few cases:

FINRA settled a case with an advisor who took it upon himself to just sign some transfer forms for a client. He was fined $5,000 and suspended for 6 months.
Another advisor signed a payroll form for a client so that his monthly investment would increase by $200. He was suspended 90 days and fined $5,000.
An advisor was caught cheating on a qualifications exam. He was fined $5,000 and then suspended in all capacities for 2 years.
Forgery - $5,000 fine and a 2 month suspension.
An advisor was charged with two counts of felony perjury and two counts of felony commercial burglary. The advisor pled guilty to one felony commercial burglary charge with the other charges being dismissed. He was fined $2,500 and suspended for 3 months.

Now does this simply amaze you? If you forge documents and commit felonies, you are suspended for a maximum of 3 to 6 months. In fact, the guy who committed the felony had a lesser fine than the other two who had ethics issues.

The point being is that these people will be allowed back into the business after serving their suspension. Would you want to be working with someone who has had ethic charges in their background?

Let’s face it. There is a lot of trust that goes into a client/advisor relationship.

Fortunately, regulators require investment advisors and brokers to be licensed and regulated and to properly disclose all information to the public.

Registered representatives have to disclose all of the information about customer complaints, regulatory problems, legal problems, etc. thirty days following their occurrence. All of this information can be found at this site.

Now fee based advisors are required to file a Form ADV with the SEC. A Form ADV should be available at the time of your initial meeting. It can also be found on this site. The Form ADV tells you everything that you need to know from regulatory problems to fees that are charged.

As you can tell above, an advisor can get a small suspension following some very questionable behavior. Since trust is such a big issue, it makes more sense to work with someone that hasn’t had these issues in their past or feel very confident that these issues will not occur again.

These are some of the questions that FINRA recommends you ask:
- What experience do you have, especially with people in my circumstances?
- Where did you go to school? What is your recent employment history?
- What licenses do you hold? Are you registered with the SEC, a state, or FINRA?
- Are the firm, the clearing firm, and any other related companies that will do business with me members of SIPC?
- What products and services do you offer?
- Can you only recommend a limited number of products or services to me? If so, why?
- How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
- Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
- For registered investment advisers, will you send me a copy of both parts of your Form ADV?

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