Two Ways To Avoid Crooked Financial Advisors
Probably everyone these days knows who Bernie Madoff is. He “made off” (pun intended) with about $50 billion by scamming at least 5,000 people. Unfortunately there are many other unscrupulous financial professionals who, because their chicanery is on a much smaller scale, tend to fly under the regulatory scrutiny radar. And when their fraudulent activity is uncovered it usually comes as a great shock to many of their clients because the persona that they had cultivated for themselves was at odds with their underlying scheming nature. Since you generally cannot tell from an advisor’s personality how honest he/she really is, I thought it would be helpful to provide a concrete example of data you can access that could enable you to avoid problematic advisors.
Mark Boucher is a financial advisor in Carlsbad, California. According to a recently filed complaint by the SEC (https://www.sec.gov/litigation/complaints/2020/comp24875.pdf), he forged checks, impersonated clients to authorize fraudulent money transfers, and stole funds from his client’s accounts to pay for personal expenses. One of his more brazen deceptions was to buy a car with money stolen from a client’s account, then to turn around a year later and sell the car back to the very same client. That takes some chutzpah!
The first thing his clients should have done before engaging his services was to look him up in a public database for all brokers and registered investment advisors (RIA) in the U.S. The URL is brokercheck.finra.org for the former and adviserinfo.sec.gov for the latter. Since Boucher’s firm is an RIA you can find him at https://adviserinfo.sec.gov/individual/summary/2187695. Once there look at the box labelled Disclosures. These represent any issues reported about this advisor. The vast majority of financial professionals in this database have zero disclosures. In Boucher’s case there are five, and the box is colored red. That alone should be the first red flag.
It appears that Boucher has had a history of problems. If you click on Disclosures you’ll find more details about each one. The top one is the current SEC action described above. The second, occurring earlier this year, is an allegation by one of his clients that Boucher stole over $500K. Continuing down the list we find that Boucher had been fired from his previous employer in 2019 for misappropriating client funds. There’s also a complaint against Boucher way back in 1999 for having lied to a client, although his employer at the time was unable to confirm the truth of the allegation.
The other useful information in this section is the advisor’s experience. In Boucher’s case he has been in the profession for 28 years but has changed firms nine times, twice after only one year or less. While that’s not illegal, anyone considering hiring him should at least investigate why he flitted around so much.
The second factor to consider before hiring an advisor is how your money will be protected. If you go back to the first page and scroll down to the Current Registration(s) section, you’ll see the name of Boucher’s firm (Strategic Wealth Advisors Group Services). Click on the name, then on View Latest ADV Form Filed. This is a form regulators require all RIAs to submit at least once each year. It includes information about the investment advisor’s business, ownership, clients, employees, business practices, affiliations, and any disciplinary events. The most valuable section for our purposes is Section 5.K.(3) – Custodians for Separately Managed Accounts. Here the RIA must report the names of the custodian firms that hold at least 10% of the RIA’s clients’ cash and investments. Legitimate RIAs utilize large independent institutional custodians such as Charles Schwab & Company or Pershing LLC. These are companies that maintain trillions of dollars’ worth of client accounts and enforce strong protections against advisors illegally siphoning out money. In Boucher’s case no information was filed. Either he made a mistake on the form or he is holding his clients’ money in a way that might put them more at risk for theft or fraud than if he were working with an independent custodian. Either way it’s another red flag.
There’s quite a bit of public information available on prospective investment advisors. At the very least you should use this data to screen out the potentially unscrupulous ones. The cost of making a mistake can be high.