Lone Wolf of Wall Street: the Advisor Honesty Question

A contender for Best Picture at the recent Oscars was The Wolf of Wall Street. The flick, starring Leonardo DiCaprio, chronicles the sleazy life and times of a financial advisor. Modeled on real-life penny stockbroker Jordan Belfort, who did prison time for scamming customers, the story leaves filmgoers with a bad taste in their mouths about advisors.

Only one problem: The vast majority of financial advisors are honest. How do I know this?

In a white paper that AdviceIQ did on the subject, we estimate that just 3% of advisors have serious negative history. Meanwhile, the American Bar Association finds that 8% of attorneys receive complaints annually. The American Medical Association says 5% of doctors are sued each year.

Sure, there are always the proverbial bad apples among the advisor ranks – and they attract a lot of attention when caught. News about them tends to crowd out the good that the vast majority of advisors do.

Bloomberg News recently reported that, 20 years after they heyday of Belfort and his firm Stratton Oakmont, a batch of similar so-called chop shops (a.k.a. boiler rooms) still operate on Wall Street.

The Belfort strategy, which never went away, is to cold-call prospects and dangle hot prospects, typically tiny, seldom-traded stocks. The artificial demand of massive sales to suckers pumps up the share price, then the stock pushers unload their remaining inventory and pocket a nice profit. The crappy stocks, of course, deflate and the customers – usually people of modest means and often retirees – are left holding the bag.

In a book he wrote, upon which the movie is based, a just-starting-out Belfort asks an older broker why they don’t target the wealthy. The veteran responds: “Because rich people don’t buy penny stocks.”

Bernard Madoff didn’t sell penny stocks either. Yet he managed to bilk the presumably financially sophisticated wealthy set with his Ponzi scheme. He raked in increasing amounts of their investment dollars, not bothering to invest most of the take and funding bogus investment returns to clients with the fresh money.

But whether you are wealthy or not, you can vet your advisor. First, if the advisor makes promises too good to be true, be he a Madoff or a Belfort, that’s a red flag. Second, you can look into the person’s background for any regulatory problems. All AdviceIQ advisors are free of such violations. The odds, however, are enormous that your advisor is a decent soul.

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AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.