If there was ever a time for families to be exceptionally cautious and aware of the risks of financial thievery, mismanagement and fraud, it is now.
Headlines throughout the past couple of years have been littered with stories of trusted advisers and employees stealing from their clients and employers. What’s really scary is that only a small percentage of such problems are actually reported and prosecuted.
Too often, families run their personal finances much more lax than they do their family businesses, but it is imperative to live by the adage that prior preparation prevents poor performance. Here are some basics to follow.
Business partners and advisers
Recent scandals involving Bernie Madoff and Allen Stanford are almost a caricature of what happens when smart people don’t practice due diligence. When it comes to investing, make sure you fully understand where your funds are being held in custody and how they are being invested. Take the time to understand the details. Use this theorem of successful investors such as Warren Buffett and Peter Lynch: If you don’t understand how it works, don’t invest in it.
Relative to the custody of the assets, ensure there is an arm’s length distance between the investment firm and the investments, as well as an independent auditor verifying the information. Whether your business partners are investment advisers, attorneys, tax advisers or others, begin by requiring a contract or a letter of engagement that you fully understand.
Create “cheat sheets” of the terms of the agreements that include:
1. What services will be provided, and which ones aren’t included in the agreements?
2. What is the billable hourly cost you will be charged?
3. What professional insurance and coverage limits are in place?
When you are working with advisers, don’t blindly trust the crowd, or if you do, seek verification.
Technology
Through technology, thieves worldwide have nearly invisible access to people’s most confidential records. As complicated as technology can be, the steps to reduce financial and identity theft can be fairly simple.
• Do not forward Social Security numbers online. Reputable banks, credit card and investment companies will not request confidential information – Social Security numbers, personal identification numbers or birthdates – via e-mail. E-mails asking for such information are most likely phishing schemes, though such e-mails may be disguised with recognizable corporate logos. With these schemes, the information likely will be used for credit card or bank fraud or identity theft.
• Consider purchasing encryption software. Many families have become too casual about carrying their laptops through airports and restaurants, leaving them in cars or leaving them out on their desktops. Strong encryption security software can protect stored data.
• Use unique passwords and change them often. Passwords utilized by the average computer user incorporate children’s names, street addresses or favorite sports teams. Even the more creative passwords should be changed several times a year.
• Conduct business and surf the Web on separate computers.
• Limit remote access to financial data and property. It is very convenient, while you’re at the airport waiting for a plane, but remote access without significant security measures or firewalls can allow hackers access to your passwords and accounts.
Failing to take appropriate steps for technological security is like walking around in an open hospital gown. You may think that you are covered or secured, but those walking behind you know better.
Invest the time to build barriers between your family and those who would do them harm, because when it comes to family security, prior preparation is priceless.
Jack Thurman, CIMA, is principal and president of BKD Wealth Advisors in Springfield, the wealth-management subsidiary of accounting firm BKD LLP. He may be reached at jthurman@bkd.com.[[In-content Ad]]
