Future Disputes

You like your financial advisor. You believe he is your friend. You cannot imagine ever getting a divorce. But money is one of the leading causes spousal divorce and advisor terminations.

Documentation with an advisor is the same as a financial pre-nup between you and a spouse. You don't think you will need the document, but 50% of marriages end-up in divorce. The percentage is even higher for investor/advisor relationships.

No documentation means all of your communications with advisors are verbal. If there is a dispute, it will be your word against the advisor's.

Service Agreement

Your advisor has a pre-nup. It is called a Service Agreement. If you read the document you will find it is very one-sided. There is a lot of protection for the advisor and his firm, but none for you. In fact, you have next to zero rights in the document.

Your Documentation

You need a document that communicates your requirements and protects your financial interests. For example, you document your:

• Performance expectations
• Tolerance for risk
• Expense policy
• Restrictions
• Termination policy 

Wall Street Business Practices

Wall Street does not like documentation that protects your financial interests. Documentation can create liability for firms and advisors who do not adhere to your requirements. Documentation protects you if there is a future dispute.

Mandatory Arbitration

Every advisor service agreement has a clause that limits your recourse to arbitration. The process is controlled by FINRA (Financial Industry Regulatory Authority) an organization that is funded by Wall Street. Yes, Wall Street regulates itself. You will not win in arbitration if you have no documenation. 

Paladin Says.....

Get it in writing. The Department of Labor requires pension plans to document their communications with Wall Street. It says, "the investment of assets is to important to rely on verbal communications". This requirement does not apply to personal savings, IRA assets, and trust accounts. It is up to you to make this a requirement when third parties control or influence the investment of your assets.