Your Financial Roadmap

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Financial Self-Defense

Financial fraud is and will continue to be a real threat. Never before have we had so much access to taking control of our own finances, but at the same time, we’re bombarded by hucksters looking to scam us – some obvious, some less so.

A recent survey of CFPs found that 60 percent of respondents knew someone who had experienced fraud or abuse at the hands of another advisor.

The good news is that you can protect yourself from financial fraud – you might call it “financial self-defense.” Here are some basic tips to help you protect your financial wealth, build financial planning trust and avoid being taken advantage of by an unscrupulous advisor:

  1. Check your financial planner’s background. Identify the organizations that license or supervise the planner, then check their websites for his background and disciplinary history, if any. Ask your advisor to provide services with the "duty of care of a fiduciary." A fiduciary is one who acts in utmost good faith, in a manner he reasonably believes to be in the best interest of the client.
  2. Never leave blanks on paperwork. Also, always ask for final or submitted copies (with the word "final" or "submitted" stamped right on them).
  3. Ask if your investments are regulated or supervised by third parties.
  4. Make sure you receive regular statements from independent third-party sources—not just from your advisor.
  5. If you invest in limited partnerships, real estate or non-traded securities, verify that the investment manager is annually audited by a reputable independent accounting firm.
  6. Always make your checks payable to the advisor's business or custodian—not the advisor himself. Question any situation that gives your advisor unlimited access to your money.
  7. Take your time before making any decision. And don't make major decisions just after a life change, like a divorce or the death of a loved one. Find a trusted family member or friend to help in reviewing or making the decision.
  8. Ask your advisor to list the pros and cons of each investment idea. If you hear only the pros, you're not getting the full story.
  9. Understand how your advisor earns his pay. He should disclose any conflicts of interest—actual, potential, or perceived—that might affect his recommendations.
  10. Before agreeing to any transaction, carefully consider the charges you'll incur and the timing involved.
  11. Understand your investments. Ask if you don't understand, and get a second opinion if necessary.
  12. Designate a trusted friend or relative to handle your investments in case something happens to you.

Take the tips listed above into consideration and practice financial self-defense to ensure your financial future is secure.