Fraud by trusted advisers doesn’t just happen to athletes. (See NFL’s Darren McFadden Learns Lesson From Financial Fumble.)
“While athletes are certainly targeted for this fraud because there’s a lot of money that they have, and it can be very enticing to a fraudster, I have seen repeatedly that same pattern play out with nonathletes,” said Laurence Landsman of the Chicago law firm Block & Landsman.
A recent study found that, between 2005 and 2015, about 7 percent of financial advisers had a record of misconduct, said Mark Egan, a professor of finance at the University of Minnesota. He couldn’t say, however, what percentage would be acceptable.
“We don’t take a stand on what the number should be,” said Egan. He worked on the study, which was published in March, with finance professors Gregor Matvos of the University of Chicago and Amit Seru of Stanford University.
He said that about a third of the advisers with misconduct records are repeat offenders. “Past offenders are five times more likely to engage in misconduct than the average adviser,” he said.
Landsman said one of the first things investors should do to protect themselves is search their adviser’s name under the “BrokerCheck” section of the Financial Industry Regulatory Authority’s website, FINRA.org. FINRA lists all regulatory actions, violations or complaints against an adviser.
He also said it also would be helpful to have a periodic audit of an adviser. Landsman said investors should be aware of fraud by advisers “because it does happen often, and it can happen to anybody.”
To avoid becoming a victim, investors should “consistently question their broker and closely scrutinize their monthly or quarterly statements,” according to securities attorney Christopher Bebel at Tefteller Law PLLC of Gilmer, Texas.
The problem is, he said, investors place so much trust in their advisers that “that type of investor scrutiny is unlikely to occur in many instances.”
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