"Is there trouble ahead? Does this sound too good to be true?" When money is present, crime and fraud might not be far behind.
Successful financial advisors become part of the high-net-worth community themselves. Not everyone at the country club or exclusive gym is squeaky clean. Let us look at 10 instances involving friends, prospects or clients that should ring alarm bells.
Why is an article like this even necessary? Shouldn't you "trust your gut" like they say on the CBS crime drama "NCIS"? That makes sense, but sometimes "your gut" can be swayed by the prospect of making easy money, especially on a continuing basis.
1. I can lend you money.
Clients often become friends. Some advisors overextend themselves financially. This can happen when you live an expensive lifestyle and forget your income can be cyclical. Most loans between advisors and clients are prohibited by the Financial Industry Regulatory Authority and could be considered conflicts of interest.
2. I will bring in the $500,000 in cash. Is that a problem?
Decades ago, people did bring their brokers a shoebox filled with currency. There are still cash businesses. Maybe your client doesn't like banks. You want to make it easy for them.
Your firm might be owned by a bank. Do you work in a bank branch? Check the rules and remind your client about the reporting procedures on cash deposits.
3. Come to my house and pick up the cash.
Now you face the additional risk of getting all that cash into the client's account! Suppose you leave their house and get mugged (perhaps on purpose) and are relieved of the $500,000. You are not a bonded courier of your firm. Your client will contend they are out $500,000. You gave them a receipt.
4. I would like you to pick up a package for me; don't look inside.
Have you seen "To Catch a Smuggler" on the National Geographic channel? You might assume this couldn't happen to you. However, you are a well-dressed advisor who takes several overseas vacations a year.
Your client, now your friend, has wanted something not sold in the U.S. You are not buying the item; you are collecting a package and carrying it through U.S. Customs. This could land you in prison, all because you thought you were doing a friend a favor.
5. I know a guy who knows a guy.
This might involve inside information. It might be the reason your client suddenly has more money than they disclosed previously. It might be the explanation for their new watch. The "know your customer" rule gets you thinking. What has my client gotten themselves into?
6. You don't want to know where the money comes from.
Money laundering is a serious issue. So are other forms of criminal activity. The industry has had KYC rules in place for decades. Experienced advisors instinctively know when something is not right.
7. Do this for me just this once.
This might happen with something in a gray area. Maybe you are asked to reverse a trade because it has not worked out. It might be something illegal. Once you do it once, the exception becomes the norm.
8. We are all in this together.
You might say this when the stock market declines. You are an investor too. When the client says this, it might concern something illegal, like trading on inside information. The nefarious message: "If we stick to our story, no one will ever know."
You have seen this on TV before. Investigators persuade one person to roll over on the others in exchange for a lighter sentence. When something bad happens, what do you think the client's lawyer will advise them to do?
9. You can sign my name (or my spouse's) anytime. I am giving you verbal permission.
This is forgery — even if you have permission. If you sign the spouse's name and there's a divorce, there could be serious consequences.
10. I will transfer money in, buy stock then sell it and transfer the money out.
The prospect does not seem at all concerned about fees and commissions. Money will arrive. It gets converted into stock. A few days later the money will transfer out. This will be done on a regular basis. The commissions involved are considerable.
You rationalize: "It's their money. They can do whatever they want." But maybe it's not their money. More importantly, transactions like this will obviously be flagged. The outcome will not be good.
Many of these scenarios seem implausible. Why would anyone fall for something like this? People do when the payday looks large.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, "Captivating the Wealthy Investor," is available on Amazon.
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