Here are 10 things you should never do with a financial advisor:
Taboo #1: Never write a check made payable to your advisor, other than for his fee.
When investing money, your checks should be made payable only to mutual funds, ETFs, brokerage firms, or insurance companies. No legitimate advisor would ever allow a client to write a check for investments or insurance payable to him personally or to his firm.
Taboo #2: Never allow your advisor to list himself as a joint owner, beneficiary, or trustee on your accounts.
Your money is yours, not your advisor’s. Keep it that way. The only place your advisor’s name should appear on documents is a citation as “advisor of record.”
Taboo #3: Never lend money to your advisor.
Taboo #4: Never let your advisor sign your name to any document.
Many transactions require your signature — particularly those involving the disbursement of funds from your account. If you are in urgent need of cash, you might be tempted to urge your advisor to bend the rules. Don’t. Forgery is a felony.
Taboo #5: Never let your advisor allow you to sign a blank form or contract.
It’s a violation of FINRA rules and a pretty dumb thing to do. Cross out sections that do not apply.
Note: For privacy considerations, it is common for your advisor to send you documents that omit account numbers and other identifying information. It’s okay to sign such forms; your advisor will fill in the missing data after you return the forms. This step is designed to reduce the risk of identity theft.
Taboo #6: Never let your advisor list his firm’s address instead of yours on account statements.
You should receive monthly or quarterly statements directly from the mutual fund, brokerage firm, or insurance company. Never let your advisor arrange for the statements to go to his office instead of to you.
Taboo #7: Never let your broker or advisor sell you an investment that isn’t available from others.
Some advisors sell in-house or proprietary investment products. There’s only one reason they do that: because they earn compensation for doing so. If an investment product is not available elsewhere, it is probably high in risk and low in liquidity — meaning you could find it very difficult to sell for as much as you invested. Like a box of cereal, all the investments and insurance products your advisor recommends should be available from any number of sources, not just him.
Taboo #8: Never let your advisor receive a share of your profits.
I’d never let an advisor share in my profits unless he was also willing to reimburse me for my losses — and while you might find an advisor offering the former, no one would ever agree to the latter.
It’s your money, so you get to keep all of the profits.
Taboo #9: Never let your advisor assign any agreement with you to another advisor.
One day, your advisor may retire or sell his practice. If so, you are immediately relieved of any and all contractual obligations you may have had with him or her. Never let an advisor — or his successor — make you think you are obligated to work with the successor. Assignment is an SEC violation.
Taboo #10: Never let your advisor invest your money in something you don’t understand.
If you don’t understand an investment or strategy, don’t invest in it. Bernie Madoff’s clients used to joke that he put their money into a “black box.” They aren’t laughing anymore.