Great. Just what we needed. Another one.
First, there was Bernard Madoff, a portfolio manager who received 150 years' jail time for bilking celebrities, charities, respected financial institutions, and other high-net-worth individuals out of $65-billion (U.S.).
Then, Marc Dreier, the New York lawyer who pleaded guilty of stealing nearly $400-million from hedge funds by selling fictitious securities. Mr. Dreier received a 20-year sentence for his crime.
After that, Allen Stanford, a Texas-based financier accused by both the Securities and Exchange Commission and the Federal Bureau of Investigation of running an $8-billion Ponzi scheme. Mr. Stanford recently pleaded not guilty to all allegations.
Then there was Detroit-based Joseph Zada, agent to future NHL Hall-of-Famer Sergei Federov, who was accused last month of embezzling $43-million from his former client over the course of 11 years.
And now, the case of Earl Jones, by all accounts a well-liked Montreal-based "financial planner," who faces eight charges of theft and fraud after allegedly running off with $50-million (Canadian) of his clients' wealth.
(I put the words in quotes, because Mr. Jones had no professional accreditation and was not operating under any Quebec or federal licensing authority. I don't understand how the media can label such a person a "financial planner," but that's a subject for another day.)
The result of these scandals, not surprisingly, has been a profound erosion of trust. Simply put, investors are distrustful and skeptical of not only wealth advisers, but lawyers, accountants, portfolio managers, or anyone working in the financial services industry.
Given the highly publicized and spectacular nature of the above cases, who can blame them?
Enough is enough.
It's time for professionals and investors to band together to stop this nonsense. We are not powerless in the quest to prevent bad apples from spoiling our reputations, or our portfolios.
Both professionals and investors need to take personal responsibility for the safekeeping of client wealth, and learn what we can do to stop high-stake frauds from happening.
Some actions financial
professionals can take
Embrace accreditation Make yourself as educated, as professionally accredited, and as compliant as possible. The more professional accreditation becomes the standard in the financial industry, the wider the "education gap" between qualified professionals and con artists, the more difficult it becomes for an Earl Jones to set up shop.
Broadcast qualifications Explain your professional designations to clients in your first meeting. Let your clients know about your continuing professional education. The more clients know how serious you are about furthering your professional knowledge, the more they will demand this same level of commitment from others.
Speak out If you hear about someone operating in what I call the "grey zone" - an unlicensed "financial consultant," a lay "adviser" who's unregulated, or an investment opportunity that seems too good to be true - tell someone about it. I can't help but wonder how many scams could have been prevented if a whistleblower had vocalized their suspicions.
What high-net-worth
investors can do to
prevent themselves from falling victim to fraud
Work with a reputable firm Any adviser you work with should work for a reputable firm. And by reputable, I mean one that's a full and active member of industry regulatory organizations, one that performs its own rigorous due diligence, and one that has an internal compliance team that provides supervision and oversight of your adviser. Always remember: Financial regulators can't look over the shoulders of people who refuse to be regulated.
Make sure your adviser
is really an adviser Before you sign on with any adviser, find out which professional and regulatory associations they belong to, and under which professional codes of conduct they operate. Rob Carrick's recent article on the topic ("Do your legwork before hiring an adviser") provides a primer on the designations that are the sign of a true financial professional.
Ask for references Any serious professional will happily provide the names of three to four satisfied clients, along with a sample financial plan or portfolio (with confidential information blacked out, of course). While this quick reference check won't always prevent fraud, it should help ensure you aren't being sold promises that don't match up to reality.
Diversify Spreading your investments among 10 or more portfolio managers (depending on the size of your portfolio) will limit potential losses and prevent a financial catastrophe should the unthinkable happen. Many of Mr. Madoff's victims would not be on the verge of financial ruin had they followed this simple, time-tested advice.
Clearly, the adviser community has a tarnished reputation; we have much to do to regain investor trust. At the same time, investors need to accept responsibility for taking simple, common-sense steps to ensure their portfolios aren't easy targets.
It's time for advisers and clients to become partners in this effort. When we work together to immunize each other against fraud, everybody wins.
Except, of course, the thieves.
Thane Stenner is founder of