What Your Financial Planner Doesn't Tell You
A quick guide on how to make sense of what your financial adviser sends you.
May 5, 2009 — -- In a recent column about fraud allegations against two financial planners, I advised readers to study account statements as one way to make sure they do not fall victim to a crook.
That advice prompted a question from a reader in Louisiana, who referred to the column's headline: "Is Your Financial Advisor a Crook?"
Q: That's what I want to know! How do I tell? The statements are so many (pluses and minuses); I don't know what's going on.
--T.W., Iowa, La.
Answer: T.W., you are correct, the account statements issued by many firms can be tough to understand. However, it's in the best interests of you and every other investor to study them carefully. Not only can a close review help you spot potential misdeeds, it also can help you understand your overall financial health.
For those mystified by investment statements, let me offer a few suggestions on things to look for when one arrives in the mail or electronically from a brokerage firm, bank or mutual fund family.
Just understand that every company's statement is different. There is no standard format. The information provided and the manner in which it is presented differs from firm to firm.
When looking over a statement, start with the account summary that typically appears at the top. Such a summary will show the account balance at the beginning of the period covered by the statement and the balance at the end of the period.
If there's a large difference, try to figure out why. Did the value of the investments you own rise or fall dramatically during the period? Did you make a large contribution or withdrawal?
If you can't account for the difference, that might be your first clue of a problem.
Account Statements: The Devil in the Details
Second, look at the transaction details outlined on the statement. This is where you will find what investments were bought or sold, how much you received in interest or dividends and whether funds were deducted or added on any given date.
For each transaction, there should be a date listed, the security involved, a share price, the number of shares and the transaction amount. This is where the fine detail is found. It may take some time to understand, but these transaction details will provide your best clues to any funny business. If there's something you don't understand, call your bank, broker or mutual fund company for an explanation.
A third area to look on your investment account statements is the positions summary. The positions are the individual stocks, bonds, mutual funds, exchange traded funds, money markets and cash holdings you own. Check over this information. Do you recognize these holdings from previous statements? Is there anything new there? Again, if in doubt, ask questions. Call the 800 number listed on the statement.
Finally, if you receive account statements directly from your financial advisor, make sure they match the ones issued by the firm holding your investments. Also, be sure you have access to your account statements through a means other than your advisor.
Ask questions right away if there are discrepancies between what your advisor sends you and what an independent custodian reports. Such a discrepancy could be a signal screaming for attention.
Remember, trust but verify.
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.