business

In 18 years as an assistant U.S. attorney for the District of Minnesota, Hank Shea has seen his share of white-collar crime, including more than a few investment advisers who had sticky fingers. "The vast majority of investment advisers are trustworthy and ethical," he says, "but, as in every profession, they are subject to all of the temptations of their business, and that can cause some of them to lie, cheat or steal." While your adviser is probably among the great majority who are honest and ethical, you still need to keep an eye on your money.

"You must be careful with whom you entrust your money, and vigilant about safeguarding your investments," Shea said. Advisers who cross the line, he said, are most likely to "prey on the unsophisticated, the most vulnerable or the most trusting."

Shea, who teaches a course and administers a program focusing on ethics at the University of St. Thomas, offers five steps for protecting investments:

1 Be as careful about choosing a professional for your financial health as you are for your physical health, Shea says. "Are they licensed, are they regulated, and are they insured?" Make sure your adviser offers the protection of the Security Investor Protection Corp. (SIPC), which would help provide reimbursement for losses because of illegal activity. Shea suggests that, if the adviser is not insured through SIPC, you should take your business elsewhere.

2 Establish a clear understanding of how much responsibility you're giving to the person who is handling your investments. "Make them earn your trust," he says. "Give them limits at first." As they earn your trust, you can give them a greater share of your investment assets and more leeway in managing your account.

3 Review your account statements on a regular basis for accuracy and completeness. "Make sure all of your transactions are on the statement and that all of the transactions on the statement are yours," Shea cautions. And look for anything on the statement that looks out of place. Shea recalls one case when an investor noticed some typos. Further probing by the investor led to a criminal investigation of the broker and a conviction for fraud and embezzlement. The broker, as it turned out, was not even licensed, and was simply scamming his clients out of their money.

4 Ask questions about anything done in your account that you don't understand, and communicate your concerns to your adviser if something doesn't seem right. "Don't stop asking questions until you get a satisfactory response," Shea says. "I've had a number of cases -- whether it's churning or embezzlement -- where investors started asking questions and didn't stop asking until they got to the root of the problem."

5 Report any unauthorized or unexplained transactions. If your broker doesn't give you a satisfactory answer, go to his or her supervisor. If you still don't get a satisfactory answer, go to the company compliance officer. If the firm can't answer your concerns satisfactorily, Shea suggests reporting the matter to the Minnesota Department of Commerce. You may also wish to report it to the U.S. Securities and Exchange Commission.

If you believe that your broker has stolen money from your account, you could also go to the local police or sheriff's department or to the county attorney. If they can't help you, they will likely refer you to the appropriate state agency. If the adviser is from another state, you should report your problem to the FBI or to the U.S. Postal Inspection Service.

Shea says that unscrupulous advisers typically have a quick answer for any concerns -- "my assistant messed up, the computer messed up, it was an accounting error," or a similar excuse.

"Everyone makes mistakes, but if it happens more than once, you should get concerned. If there's a pattern of mistakes, then maybe they're not really mistakes," he said.

Shea also warns investors to beware of using one professional to serve multiple roles. For instance, you might want to avoid letting your attorney or your accountant serve as your investment manager.

"That is always fraught with temptation," he says. "It's better to use one professional to keep tabs on another. For instance, you might ask your accountant to make sure your broker is handling your investment matters appropriately."

Shea prosecuted one case in which an attorney who won settlements in personal injury and workers' compensation cases persuaded his clients to invest those settlements through him. The attorney ultimately embezzled more than $700,000.

In all likelihood, your investment adviser will never intentionally take money from your account. But if you value your money, you need to stay vigilant. Keep a close eye on your account, ask questions when something seems awry and don't rest until your questions are answered to your complete satisfaction.