Is Your Financial Advisor a Crook?
Pay attention, study your statements and maintain a healthy skepticism.
April 21, 2009 — -- Over the weekend, I read a New York Times article that scared the hell out of me as a financial planner.
The reason?
It forced me to look deep within myself and ponder what I could be capable of doing at my very worst. That's not a comfortable topic to consider, but it's something I and other financial advisors must confront, given recent events.
The reality is that current and would-be clients have to be asking themselves, "Who can I trust?" And once in a while, we in the financial industry should ask ourselves, "Why should clients trust us?"
The article that gave me a scare concerned the alleged misappropriation of client funds by a financial planner in Purchase, N.Y.
New York Times personal finance columnist Ron Lieber wrote about the case from a first-person perspective as a client of Matthew Weitzman, the planner accused of removing millions of dollars from client accounts. Weitzman's lawyer, Marc Mukasey, told the Times: "Matt Weitzman has not been charged with a crime or any violations. We're looking forward to a resolution of this matter that satisfies everybody."
As a personal finance columnist, Lieber wrote, "I thought I knew what I was doing. So if I can get mixed up in something like this, trust me, it can happen to anyone."
Lieber said his close review of his accounts showed none of his money was missing, but it's apparent the experience has left its mark on him. I know Lieber on a professional level, and that may be one reason his experience struck a chord in me.
Madoff Scandal Was Different
A second, more significant reason the column about Weitzman resonated with me is that the firm he co-founded operates much like my own, offering financial planning and investment management services to clients.
When the Bernard Madoff scam erupted last year, it was easy to separate myself from it, given the billions of dollars involved and the warning signs about him that in my view should have been clear to many.
But with Weitzman, and a second case against brought against Columbus, Ohio, financial planner Julie Jarvis by the Securities and Exchange Commission, these things are hitting closer to home.
The SEC accuses Jarvis, in a civil case, of misappropriating at least $2.3 million from the accounts of two elderly clients through means that included forgery and falsely notarized transfers. Jarvis' lawyer, Bryan Jeffries of Westerville, Ohio, has so far declined to comment to the media on the case, according to a local business publication.
In the Weitzman case, forgery has also been alleged, according to the New York Times account.
Like me, both Weitzman and Jarvis belonged to the National Association of Personal Financial Advisors, an organization of fee-only financial planners who pledge to adhere to the highest fiduciary standards.
Weitzman and Jarvis both have been kicked out of the organization, according to an e-mail NAPFA chair Diahann W. Lassus sent to members.
"NAPFA has always held its members to the highest standards in the profession," said a NAPFA statement. "That doesn't mean we are perfect. Like every profession there may be individuals who choose to violate the trust of clients they serve and are subject to prosecution by the regulatory authorities. This occurs in law and medicine."
Normally, investors' first line of defense against theft by a financial advisor is to make sure their assets are held in accounts with an independent, third-party custodian. With Weitzman and Jarvis, client assets were kept at Charles Schwab and T.D. Ameritrade, respected firms that cater to independent advisors.
With Weitzman, it was Charles Schwab that first raised questions about a "potentially unauthorized withdrawal," according to a statement issued by Weitzman's firm, AFW Wealth Advisors.
"AFW views these potentially unauthorized transactions as isolated acts of Mr. Weitzman. Mr. Weitzman's connections to AFW accounts and AFW's daily operations have been completely severed. AFW does not anticipate that Mr. Weitzman will be returning to AFW in any capacity," the company said in a statement.
Normally, an advisor would have authority to carry out trades on behalf of a client, selling Fund A and buying Fund B. But he or she would not be able to withdraw funds from a client's account -- unless forgery is involved.
In theory, such forgery could be committed by anyone. In reality, it is easier for a crooked financial advisor to pull off because he or she is familiar with the necessary forms and has access to the needed information.
Ultimately, an investor's best defense against a crook is vigilance. Pay attention, check your accounts online, study your statements and maintain a healthy skepticism -- even if you're dealing with me.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.