#1.... never put all your eggs in one basket
#2.... always know/have access to your financial information

You'd think they would have been smarter about their money!

Until I went to work for a CFP I didn't know an ethical advisor would use a third-party to hold the assets, for instance. If more people knew this, Madoff wouldn't have been able to scam as many people as he did. Clients were writing checks directly payable to Madoff and had no idea they were doing something that should have been a big fat warning sign in itself.

I'm a Boomer and the only thing I ever learned from my parents was to balance one's checking acct every month, which these days is possibly the most useless piece of advice around. It took me years before I understood enough about financial services to ask the right questions because now I know enough to know, what I DON'T know!

The principle is far more important than any interest it can draw, but then most of us understand that....now.

The broker could only 'leave the country' with it IF you made the check out to the broker, which was the point I made in my first post, above.

If the check was made out to the third-party institution; e.g., the brokerage or bank, using a non-discretionary account, no broker would be able to cash in your funds at will and take the money by transferring it anywhere without your knowledge. Even if they had managed such a fraud, the brokerage would be obligated to make your account whole. They carry insurance for such occurrences, which I believe are very rare. As long as you have the paperwork for your account, you have sufficient proof of ownership.

About 10 yrs ago at a well-known local bank, an elderly woman's family discovered she had been so incredibly naive, the woman had walked into the bank and handed $7 million in cash to an operations officer to open an account. She filled out no paperwork, signed no papers, asked for no receipt. The OO stole the money outright, depositing it in a brokerage acct off-site under the OO's name.

When the elderly woman came back after a few years to get her money, the theft was discovered because the OO was stupid enough to still be working there. She'd spent most of the money, of course, so I don't believe more than one or two million was recovered from assets reclaimed. Because there was no paperwork, the bank had no liability. The elderly woman was naive, but the criminal was actually the stupid one!

In the cases that maime quotes, did these crimes occur even though the investment checks were made out to the third-party brokerage or bank that was going to hold the assets? For example, we use a professional advisor for my MIL's assets. She NEVER writes a check to the advisor, ever. Fees on her accounts are automatically deducted electronically which she can check on-line. Any time we send money in to be invested, the check is made out to the institution holding the assets - not the advisory firm. The third-party institution immediately sends us confirmation of receipt and trading data within 2 days of receiving the check.

There is nothing wrong with being a conservative, low risk investor, as long as you understand that your chances of having sufficient funds to ensure a comfortable old age are relatively low unless you are saving 20% of your income on a consistent basis over many decades of steady employment. Even then, understanding how to mitigate risk in your everyday life necessitates an understanding of the cost-value proposition of (different types of) insurance, for example.

Which is why it can pay to have a good advisor, and understand the difference between fiduciary and suitability standards. A competent and ethical Registered Investment Advisor (which unfortunately the aforementioned author did not have) is able to offer not only sound investment advice, but run different scenarios that can help clarify what alternatives are available to you when developing realistic budgets for your lifestyle. This is especially important as milestone events happen in your life that require financial adjustments, whether positive or negative.

The learning curve for investing is a steep one. Your right to be wary. Lots of very intelligent people have been ripped off. I haven't been investing that long, but what I've found is that it is what you DON'T know, that can/will come back to bite you. It is common for brokers to prey on people's inexperience. They will do everything they can to make sure their butt is covered while giving you advice that may or may not be good for your portfolio.

I'm sure some are honest, but I've met too many who are skilled in making sure they tell you as little as possible so they can't have their feet held to the fire when their shifty shenanigans are eventually uncovered. The SEC is worthless, as are all of the other regulatory agencies that were supposed to protect investors (look at Madoff). We found this out when our previous broker was sending us fake statements.

Things will never change until laws are passed that make the crime fit the punishment. Steal a widow's retirement, life in jail. Period. I just read about a bill that might be passed that would eliminate mandatory arbitration. I don't understand why it was ever allowed to begin with. We have courts. Why not use these?

If you want to read some interesting stories of how these situations happen, check out EF Moody-daily commentary. He's a financial planner in CA. Good info and sad stories, with a few funny pics as well!

A link that might be useful:

www.efmoody.com/gripes.html

House Leader Circulates Draft of SEC Reform and
Investor Protection Legislation

www.financialcrisisupdate.com/2009/10/
house-leader-circulates-draft-of-sec-reform-
and-investor-protection-legislation.html

The motto of the financial industry is 'caveat emptor' - buyer beware. People are accustomed to the consumer protections they enjoy when dealing with banks and credit unions, not realizing that other segments of the financial industry are very lightly regulated, and usually only against outright fraud.

People also need to understand the following about RIA's.

From AARP-SEC:
"“Fiduciary” means that the person working for you owes you the highest possible duty of care and loyalty, so that a relationship of trust and confidence exists between you and the planner. While you may think that this sort of trust and confidence will naturally exist, a fiduciary relationship usually depends on the facts and circumstances of a particular situation. Many brokers will not accept fiduciary responsibility. They may already have a fiduciary relationship with their brokerage firm that can conflict with their duty to you. That usually means you would truly be in a “buyer beware” relationship should you do business with this person, because you are then assumed to be knowledgeable enough to watch out for yourself when it comes to investments. If that’s the case, you should know upfront. Or, you may wish to work only with professionals who are always fiduciaries to you."

From EF Moody; PhD, LLB, MSFP, MBA, BSCE
Life and Disability Insurance Analyst AND a Registered Investment Adviser:

"RIA: This "designation" needs to be separated out and discussed individually. The letters stand for "Registered Investment Adviser". It is neither a true "designation" nor a degree. It indicates that the individual has registered with the Securities Exchange Commission or the California Department of Corporations (most other states require registration within their state) for anyone that charges a fee for securities advice or holds themselves out to be a financial planner/adviser. Such an individual MUST provide a prospective client with a document detailing their experience, education, fees, conflicts of interest and other information which a consumer would need to determine competency and objectivity. Unfortunately, only a few planners had filed with the SEC or the state and this left the consumer exposed to the continued problem of presenting themselves to unknowledgeable agents (simply because they do not ever ask for a summary of their adviser's experience, education, or modus operandi).

In California in 1992, there were only 2716 advisers registered with the state and 2992 broker dealer firms.

State and federal agencies have been trying to pass legislation to require registrations of all entities that give financial planning advice, but there has been intense lobbying by many banks, CPA's, attorneys and other special interest groups say they should be exempted from this filing under the assertion that they are already highly regulated. (True, but not in financial planning. Further, regulations under financial planning may be more restrictive.) Other planners who do not charge a fee say that the registration does not apply to them at all- and this used to include most of the larger brokerage firms (Shearson, Prudential, etc.)- since they did not offer any special advice. Yet they use monikers such as Financial Consultants that certainly imply added expertise and involvement with the consumer. That has changed with the use of wrap stock and mutual fund accounts and the requirement of a at least a series 65 securities license.

With this background in mind, it is worthy to note that the California Department of Corporations has made some inroads in denying exemption for all but the most incidental of transactions. (Effective with new laws, anyone dealing with investments or calling themselves a financial planner will need to be registered with the Department of Corporations.) However, they neither have the money or manpower to review even the advisers who have registered (I have been audited twice in eight years) never mind police the vast numbers who refuse to register. But they are trying and deserve credit.

Irrespective of the legal requirements and whether or not an advisor is required to register, consumers would be well advised to DEMAND a complete written document of a financial representatives education, qualifications and background regardless of the work undertaken. Should anyone decline to give this information, walk away. It is imperative to get the best advice from the most qualified advisers, and the written statement is the most all encompassing document.

I repeat however: the RIA registration is not an indication of any true ability. The registration simply forces the individual to comply with documentary evidence of background, how they charge and so forth. While the consumer may still have difficulty in trying to decipher the information contained therein, it definitely is a step in the right direction.

Will you act as my fiduciary?
www.aarp.org/money/financial_planning/financial_advisers/
a2002-08-12-FinancialPlanningChoosingPlanner.html

Who can you trust?
www.efmoody.com/whouse.html

My nephew and his wife, who have just had their first baby, were looking for an advisor. They had talked to the 'free' planners at various discount brokerages and were discouraged by the fact the advisors were even younger than they are (my nephew will be 31 next year). I asked the CFP we use, who has been in business for over twenty years, if he could recommend someone they could talk to as their investible assets are a modest $100K (the rest of their investments are in employer 401k's). The CFP arranged a conference call with my nephew to give him basic investing advice on 529's and other alternatives, free of charge. Really good RIAs get most of their business from soft marketing, not the 'free lunch seminar' hard sells. We appreciated the favor, and they know this. Good service is critical in this business; that's at least half of what you're paying for.

Seniors are automatic targets. Before my mother was diagnosed with dementia/Alzheimers, she started stashing cash in "hiding" places unbeknownest to my Dad. She normally managed all the finances prior, paid all the bills, so he really didn't understand why she was acting the way she was. Prior to her becoming ill, they had NO Debt, High Credit Scores, House Paid for., paid Taxes on time, never overspent & lived frugally etc. etc. They did everything right that they were supposed to do.
Then my Mom started having trouble writing out simple checks & balancing the checkbook and even loosing cash & her purse--completely unlike her. They lived in another state, so much of this wasn't discovered until she was diagnosed & already into the mild/moderate stages of Alzheimers. My DH & I finally had to step in & move them in with us & became their full-time caregivers. Took a huge burden off my Dad.

Seniors can easily be taken in EVEN if at one time they were highly responsible with their finances & watched over their own money. Heartbreaking to watch this happen.

PS Last week I found a $5 bill stashed in her Rosary case--- almost 2 years since her passing.

My 81-yr-old MIL believes every single come-on ad printed in the newspaper or trumpeted on TV - she always has (I've known her for over 35 yrs). She insists upon believing that the 'miracle' gadget/vitamin/whatever must work, because why would anyone risk their reputation by selling it if it doesn't? Especially if it's 'recommended by a doctor' - that automatically makes it legit in her eyes. She is from a culture and generation where reputation was everything and any lettered credential was impressive, even if it was faked.

Why do we use a CFP for her finances when I could easily do it myself? Because my DH is an only child, and we have our own health issues that make it a 50-50% chance she's going to outlive us. She is completely, utterly, totally incapable of wisely managing her money and avoiding not only con artists, but greedy relatives - and she always will be. If anything happens to us, we have a successor trustee who is reliably honest, but financially unsophisticated. Having a good CFP as her advisor is something we consider a necessity for both our and her estate planning needs.

I know many people who use advisors because they have absolutely no interest in managing their portfolios. Some of them have good advisors, some of them are so-so. I find investing interesting and enjoy it, but I would never make the assumption that anyone else does "because it's not that difficult". If a subject doesn't interest you, it just doesn't. You can't force someone to get into the 'nuts and bolts' of financial management, even if it's in their best interests to do so. I didn't develop an interest until fairly late in life, and although I wish I had done it sooner, the fact is, I really wasn't interested. Without the useful tool of the Internet, it was very difficult to find relevant (and free) information thirty years ago. Now it's everywhere, but that's a very recent phenomenon.

Wow! Overgeneralize much? My parents, both born in the 20s, have been careful money managers their whole lives. They even locked their front doors.

Sorry, I should have probably said, INVESTING management. Which is, after all, the point of the OP. If your parents were conversant with allocation diversification, the risks vs rewards of both bonds and stocks, the difference between Registered Investment Advisors and brokers....then your parents were certainly very far from average, and should be congratulated.

Why do we use a CFP for her finances when I could easily do it myself? Because my DH is an only child, and we have our own health issues that make it a 50-50% chance she's going to outlive us. She is completely, utterly, totally incapable of wisely managing her money and avoiding not only con artists, but greedy relatives - and she always will be. "

Your MIL is "is completely, utterly, totally incapable of wisely managing her money and avoiding not only con artists, but greedy relatives - and she always will be. "

And she always will be? Interesting.

If she has enough money to require the services of a CFP, then is sounds like she must be doing something right.

She comes from a culture where women are decorative and decorous wives. To be intelligent, competent, educated, and ambitious is completely foreign to her. She is sweet, kind, and polite, but she has absolutely no tools to successfully navigate a world where 'caveat emptor' is the ruling truth.

This is a woman who, when I told her to come tell me to print her boarding pass no more than 24 hrs before her upcoming flight, could not figure out what that time would be. She started to count backwards on her fingers and got hopelessly confused. She can manage daily living tasks, but anything comparative or evaluative is simply beyond her capabilities any longer.

She is what she is, and nothing is ever going to change her. We do not waste our time trying, and simply make certain her affairs are kept legally and financially in order.