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Most of my retirement funds are currently in an account at Fidelity. I was contacted about a year ago by one of the many wealth management services out there, and through a number of telecons and reviews they have me convinced that my money would be better off managed by them rather than sitting in a target date fund at Fidelity. So I'm considering letting them manage the assets.

They have stated that this isn't an account transfer - rather, they will be actively managing my money while it stays at Fidelity. I'll access the account through the same portal I currently use.

So I'm about ready to take the plunge, but my question is how do I vet them to make sure it's not some kind of scam? I'll have to sign some documents to give them access to my account, but how do I make sure they can't do something like transfer all of my money out of the account? They will need to be able to place trades, but of course the money should remain in the account unless I move it myself. All of my financial dealings in the past have been with big-name institutions, which made me feel comfortable and that I could trust them.

Note that there is nothing about this advisor or their behavior that has made me suspect anything about them. If it's a scam, they've done a great job. This question comes from my own lack of knowledge and the huge downside of being wrong, rather than some spidey-sense that they've triggered.

EDIT: Thank you for all of the helpful answers and comments. I accepted the answer that most directly addresses my question - however, I can't miss the very loud chorus of voices telling me that this is the wrong move. I will research that further.

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    "they have me convinced that my money would be better off managed by them rather than sitting in a target date fund at Fidelity." You should be aware that target date funds beat actively managed money. Yes it's possible they this company has done better than an index fund in the past but there are reasons that index funds win. Chiefly it's the incredibly small fees. Make sure to look at what their fees will do to your money long term. Jul 13, 2023 at 12:52
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    Is this a service unrelated to Fidelity, or do they also have a contractual agreement with Fidelity. Sometimes the service is tightly integrated with the broker, other times they don't. Jul 13, 2023 at 13:24
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    "I was contacted about a year ago". Always assume that anyone who ever contacts you about anything is a scammer or is otherwise not worth engaging with. If you want a financial advisor, then you should seek them out yourself and contact them by going to their actual physical office. In choosing a financial advisor, I would specifically avoid this one precisely because they contacted you first and not the other way around.
    – kloddant
    Jul 13, 2023 at 16:13
  • Note that if you have a large enough account at Fidelity, they provide in-house financial advising services which seem reasonable, though I wound up using a slightly different strategy.
    – keshlam
    Jul 14, 2023 at 4:35
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    If they've convinced you that your money could be managed better, (A) get someone trustworthy to sanity check that claim, and (2) consider that even if true they may not be the ones who ought to to manage it. "Cold calls" should indeed always be treated with some suspicion.
    – keshlam
    Jul 14, 2023 at 4:40

4 Answers 4

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How do I make sure they can't do something like transfer all of my money out of the account?

Unless you sign something that authorizes them to make transfers to third-party accounts (whether it's their bank account or anyone else's account other than one in your name), they won't be able to move money out, with the exception of their periodic fee debit.

Allowing third-party transfers would trigger "custody", which leads to much higher scrutiny into their business by their state regulator, FINRA, and/or the SEC (many independent advisory firms avoid custody for this reason).

How do I vet them to make sure it's not some kind of scam?

You can also check their background using FINRA's BrokerCheck, or the SEC's Investment Adviser Public Disclosure (IAPD). I highly recommend doing this with anyone you're considering. These disclosures will show past history of customer complaints, adverse rulings, disciplinary action, etc. For Registered Investment Advisers (RIAs), IAPD will show the firm's ADV Parts 1 and 2, which would show you if the firm takes custody of assets, outlines their fee structures, etc. The IAPD also shows you the history of the individual advisors as well.

If the firm doesn't tell you their CRD number to search them on IAPD (names work too), that's a red flag. If they don't provide you with their ADV Part 2 directly when/before sending you their advisory agreement, that's a red flag. If they don't show up on BrokerCheck or IAPD, that's a red flag.

Lastly, you can also ask Fidelity to confirm that they know this firm. In order to manage accounts at a Fidelity/Schwab/etc., investment advisers need to get vetted and approved to manage money there. It's not a guarantee that the investment adviser isn't shady, but at least it's an indication that Fidelity didn't see anything sticking out. It goes without saying that if Fidelity doesn't know the firm you're talking to, run.

Generally, at least in my experience, you'll have two sets of forms. One is your advisor's advisory agreement between you and the firm that outlines the engagement. The other will be Fidelity account forms - this gives your advisor limited power of attorney (LPOA) to place trades and deduct fees from your account and can be rescinded at any time by notifying Fidelity of your desire to terminate the LPOA. The Fidelity forms are important because this means that the accounts are maintained/custodied by Fidelity (the big-name firm you're already comfortable with). What you probably don't want to see is account forms from the advisory firm themselves or another unknown entity.

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  • So generally you're giving them some kind of limited access to the fidelity account and fidelity should be able to confirm that the access is limited? Meaning, whatever you give to them, you can also send to fidelity and they can confirm that nothing in there allows them to withdraw money?
    – DonQuiKong
    Jul 13, 2023 at 16:49
  • @DonQuiKong At least for the Fid forms to confirm that they're legitimate, yes. The standard account applications and LPOAs don't include move money authorization (aside from fee debits). Standing letters of authority (SLOA) to move money are separate forms and should never be required to work with a firm. Fid likely won't review the advisory agreement since they can't give legal advice.
    – Stan H
    Jul 13, 2023 at 18:00
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    I found their CRD number and was able to check into their background that way. Thank you, this is exactly what I was looking for.
    – rothloup
    Jul 14, 2023 at 4:52
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If you want maximum assurance that they won't do anything shady, look for an advisor that is a fiduciary. This is a special category of advisor that is ethically and legally bound to act in your best interest at all times. It's a very high level of trust that's backed up by professional and legal enforcement mechanisms. There are serious consequences for breaking that trust by taking your money, or even by something small like making trades that earn them a commission without that profit being disclosed to and approved by you in advance. Breaches of fiduciary duty can lose them their professional credentials and can enable you to sue them for fraud and recover damages. It's the strongest protection you can get in the world of financial management.

Fiduciaries tend to be fee-only advisors. Not all fee-only advisors are fiduciaries, though. Some advisors advertise themselves as Certified Financial Planners. This is a separate credential that includes many things, but part of the rules for CFPs require them to be fiduciaries. The CFP board's website has a "find a CFP" tool, which may be the easiest way to locate a fiduciary advisor near you.

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  • Yes, but this begs the question: how do you know that a financial advisor who approaches you is in fact a fiduciary, and a reputable one? That's the flavor of the question posed. Jul 14, 2023 at 16:04
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    I would assume that anyone who is cold calling is not reputable until proven otherwise. Beyond that -- you research their reputation and read their contract.
    – keshlam
    Jul 14, 2023 at 17:47
  • This sounds great; pity that it doesn't seem to really exist in Australia. However, in here I guess the closest is independent financial advisors, who are free to offer products by any provider, instead of being tied to a single provider. Problem is, I tried one and still was trash - as in he recommended useless stuff that he himself recommended to avoid in on his own website! (life insurance for someone without debts or family). He seemed to be just repeating some template. The only solution seemed to be to leave him a bad review in Google. I wonder if a fiduciary would fix this?
    – hmijail
    Jul 15, 2023 at 8:08
  • @JohnBollinger It varies by locale. Some states have a licensing process, some states can attach fiduciary responsibility simply because you claimed to be one. Some situations (like being an estate's executor) always create a fiduciary relationship. The easiest way is probably to look for a CFP certification. That requires a fiduciary relationship, and the CFP board website has a convenient verification tool.
    – bta
    Jul 18, 2023 at 19:33
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they have me convinced that my money would be better off managed by them rather than sitting in a target date fund at Fidelity. So I'm considering letting them manage the assets.

LOL they're lying for personal gain.

Read John Bogle's book "Common sense on mutual funds" for why the idea that a "Rain Man" stock picker cannot outperform the market. Yes, maybe by 1% or even 2% in a very lucky year, but they must charge a 1.5% expense ratio to do that, because that stock research isn't free, and Rain Man commands a very high salary. The result is that even if they beat the market a little, they can't beat it by their high expense ratio, and that means they're a net lose compared to an index fund whose mission is to simply mirror the index, and so has a miniscule expense ratio under 0.1% (1/10 of 1%).

I'll have to sign some documents to give them access to my account, but how do I make sure they can't do something like transfer all of my money out of the account?

Because they don't need to transfer the money out to loot the account. Here, the "advisor" (salesman) has a commission-based relationship with a managed mutual fund. The "advisor" tells your Fidelity account to purchase that exact managed fund and flags themselves as the salesman of record. It's a class "A" fund, so you pay a 5% front-end load to get into that fund. Your "advisor" then gets a ~5% sales commission for placing you in that fund (and that's where the front-end load went). And they can repeat as often as they please.

That fund isn't any better than the index funds you were already in, which means just like that, the salesman just looted 5% out of your nest egg into their pocket.

It's even worse, because "front-end loads" as a concept create a false sense of "Lock-In" or "fallacy of sunk costs", which means you're reluctant to bail out of it when it becomes a loser or there's a better investment over there. They could even tank the fund on purpose to loot money out of it. Your "Advisor" is not really shopping for good investments for you, they're after good investments for them.

Corrupt? Self dealing? Are you kidding me, that arrangement is traditional business-as-usual, and doing this is the reason A-class mutual funds exist. This is the norm of how old-school brokers ("financial advisors") operate. Only in the last 30-40 years did discount brokers like Vanguard, Fidelity and Schwab start earnestly attacking the old school and giving people a genuine alternative that didn't involve fleecing. Bogle's book I mentioned was the clarion call for this revolution, and Bogle started Vanguard to do exactly this.

And you may have noticed that the "financial adviser" doesn't charge much. Now you know how they are compensated. Again, this is the industry norm, so no one is going to call it a swindle. (Other than populists like Bogle).

By the way, I hold ETFs, and I can pop out of an index fund ETF at 11:15 and be in a different index fund at 11:17. You really shouldn't day-trade ETFs :), but you see where I have absolutely no "lock-in" or loads.

All of my financial dealings in the past have been with big-name institutions, which made me feel comfortable and that I could trust them.

You need to use your own judgment regarding trust, but being a big famous company doesn't help. They are some of the worst for this, because this is the traditional practice in stock-brokering.

Now, if you say "No A-class funds", they are way ahead of you. They have increasingly complex financial products - derivatives, insurances, annuities - that are brilliantly crafted/structured to conceal hidden fees and costs. The products are complex on purpose to make it impossibly difficult for non-investment-bankers to understand and track what is going on inside them.

These guys do this for a living, and it's very much a confidence game - they are gaming your confidence.

Note that there is nothing about this advisor or their behavior that has made me suspect anything about them. If it's a scam, they've done a great job.

Of course. That emotion you're feeling of comfort and readiness, their entire job is to create that feeling. They're much more a "people handler" than they are a "technical investment expert". So yeah, you're probably dealing with a highly competent "people handler".

Now if you want good advice, there are "Fee-ONLY" advisers who are actual financial advisors and do not have any of the usual corruptions, commissions or other financial stake in the recommendations they make to you. These guys generally think Bogle. They are harder to find, since they do not widely advertise.

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Note that you can work with a financial advisor who only advises, without having any access to your funds, and who is paid for by you so you know they aren't biased by possible commissions for recommending particular products. That doesn't guarantee they're competent -- you have to do your own due diligence -- but it eliminates conflicts of interest.

Having said that, the advice I've gotten from the company holding my 401k hasn't been bad. I did crosscheck them against a fee-only advisor, and I actually liked the latter's suggestions a bit better (somewhat less aggressive), but both were doing the same kind of monte-carlo simulations of investment strategies to validate strategies that might suit my stated level of risk tolerance.

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