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How to Protect Your Wealth from Ponzi Schemes
and Other Frauds
 Recently, I made a presentation to a group of business owners and was taken back when it became apparent to me that most of the participants were not sure how their financial advisor was being compensated. Even more importantly, many didn’t know whether their money was safely housed with an independent custodian. |
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Ronald W. Rogé, MS, CFP®
Chairman & CEO |
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Having
an Independent Custodian
The importance of having an independent custodian for
your money, that is separate from your advisor, was recently brought to the forefront in the news about the Bernard Madoff and the R. Allen Stanford Ponzi Schemes. Having an independent
custodian that sends statements, which you can compare to the statements you receive from your advisor, is the first step you can take to protect yourself from such schemes.
Knowing How Your Advisor is Compensated
In addition, knowing how your advisor is paid is another
very important factor in the relationship you have with your advisor. It will allow you to make informed judgments, about the advice you are given in that important relationship.
There are basically three types of compensation:
- Fee-Only: This is a compensation arrangement where your advisor is paid a fee (one-time and/or on-going) to work with you. The
advisor agrees to act as your fiduciary in financial matters. The advisor also agrees to be paid only by you and will not accept commissions or payments from third parties. This
arrangement eliminates most conflicts of interest that exist in today’s financial advisory relationships.
- Commissions: Most brokerage firm employees (registered representatives) will charge commissions. Some are disclosed (you can see
the commission on the trade confirmation) while others are buried into the product (such as trailer commissions); so you don’t really know the actual cost of the product
you are being sold (typically insurance products, annuities, municipal bonds, some mutual funds have these compensation structures). Registered representatives of a Broker-Dealer
have a duty, by law, to the broker-dealer, not the client. Their primary responsibility is to conduct trades for the broker-dealer.
- Fee-Based: This is a euphemism for “Fee-Only” which we described above. Don’t be fooled by this term. Here a broker-dealer’s registered
representative wants you to believe they are acting as a “Fee-Only” advisor, some of the time. “Fee-Only” means “Only” not some of the time.
Fee-Based is a combination of commissions and fees.
It is important that you know how your advisor is being compensated. It is ultimately your responsibility to know if the advice you are being given is right for you or for the
person selling you the product. You have the right to know how much (disclosed and undisclosed) that relationship is costing you and the value being delivered for that cost. To
avoid this conflict of interest, you can work with a “Fee-Only” advisor who will put your interests first by agreeing to act as your fiduciary and not accept payments
from anyone but you.
You can find a Fee-Only advisor, free of charge, by contacting The National Association of Personal Financial Advisors (NAPFA), the organization for Fee-Only advisors, at www.NAPFA.org or
call NAPFA at 888-333-6659.
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For additional information about our services, please visit us at www.rwroge.com or call our office toll-free at 1-877-218-0085.
Click Here to read about Roge in the News-4th Quarter 2008 Published Press. |
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| R.W. Rogé & Company, Inc • 630 Johnson Avenue • Bohemia, NY 11716 • Phone: 631.218.0077 • Fax: 631.218.0147 |
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| © Copyright 2008, R.W. Rogé & Company, Inc., All rights reserved. |
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