Sketchy-meter going off

June 16, 2012 9:09 PM

Some questions about some information asked for by a financial manager.

Mr Sunny has a financial advisor who is asking for the following information: Financial holdings, IRA's, interest income, tax bracket, annual income, income from mineral rights, real estate income,stocks, etc. The financial advisor claims that she needed this information as part of the Frank-Dodd act. She only manages an inherited IRA, and is out-of-state.

So, is this legitimate, or should we be taking steps to protect ourselves? What steps would those be? We could switch to a local manager in the same company, which would be simplest for us.

posted by annsunny to Law & Government (10 answers total)

I assume this person is his rep at a broker-dealer and not an investment advisor wih a fiduciary responsibility to your husband. Someone with fiduciary responsibility collects that kind of information because they're liable if they don't act in your best financial interests and they can't do that without understanding what else you own. Frank-Dodd set in motion events that will eventually hold broker-dealers to a standard similar to fiduciary, but it hasn't happened yet. However, BDs are a) already implementing fiduciary standards in advance to be safe, or b) implementing fiduciary to get opportunities to sell more, which isn't exactly the point, obviously.

Regardless, there's no need for you to bother with all of that. Worst case they try to get you to sign some waiver or ask you to transfer the account.
posted by michaelh at 4:14 AM on June 17, 2012

I suppose I'm assuming this is company-wide. You might talk to the local rep to see if they would do the same thing. The answer would certainly give insights into the motives of the out-of-state rep.
posted by michaelh at 4:21 AM on June 17, 2012

Wouldn't they be registered? Here's something about this on the SEC website. That would be something you can check.
posted by belau at 5:52 AM on June 17, 2012

The only thing they have to know - since the source of funds for the IRA is known to them (and even then many of these questions are inappropriate) is your SSN#. Nothing else matters. There is almost nothing in those questions that is required to fulfill a fiduciary duty to you.

There is almost no chance they aren't trying to gather data on you to allow them to see you new products down the road. Tell then no, and if they object further terminate with extreme prejudice.

(Also having a broker manage your IRA is both a bad idea and expensive - how many times has it been traded in the last few years? what are the fees on the products they have you in? - the fact they'd go on this little information expedition makes me wary.)
posted by JPD at 7:12 AM on June 17, 2012

Businesses of all kinds regularly lie about legal requirements. A common one: "The PATRIOT Act requires that we secure this information."

Another: "State law: No shoe, no shirt, no service". There may or may not be a state law to that effect, but the reference to state law allows them to claim that they have no choice.
posted by yclipse at 9:01 AM on June 17, 2012 [1 favorite]

Response by poster: We asked my BIL about this, as he inherited from the same IRA. Note: He kept it all at the same firm, but moved to a local manager. He says his adviser isn't asking for this information.

The company, by the way, is Waddell and Reed. She is overnighting the forms to Mr Sunny, so he can sign and return them, because everything must be filed by June 30 She is a financial adviser, who managed the retirement account of the original owner. She called Mr Sunny on Friday regarding this info.

We have other retirement accounts through Mr Sunny's work, and elsewhere, none of them have asked for this info.

Thank you all for the information so far. We will check out the SEC site.
posted by annsunny at 9:11 AM on June 17, 2012

This depends on the remit of your financial adviser to a degree. If it is to consider this IRA in the context of your retirement (or indeed for many other contexts), then it makes sense for them to have the full picture of your finances. Indeed it would be remiss of them to not have it otherwise they cannot ensure you have a balanced portfolio.

I hope your financial adviser is fee only and not recommended high ER funds. If you are open to managing it yourself you may like to consider Vanguard's low expense funds abd seek investment advice over at the Bogleheads.
posted by NailsTheCat at 1:11 PM on June 17, 2012

Response by poster: Mr. Sunny called W & R yesterday, and they told him it was because of Finra rule 2090, which is called "Know your Customer and Suitability" . They said that in order to comply, they are requiring this information, or they will provide no financial advice whatsoever, to avoid liability. If our broker doesn't obtain the information, our account will default to the main office. The act is active on July 9 of this year.

*Yes, they do have high fees, but the funds have done well. We may switch, and thank you for the suggestions.
posted by annsunny at 10:49 AM on June 19, 2012

I'm laughing - because read your link - they basically aren't required to know anything as long as they have you in mainstream products.
posted by JPD at 11:07 AM on June 19, 2012

Response by poster: Yes, JPD, but I wanted to know the basis for requiring this information. :)

I know we don't have to legally provide the information, as none of our family and friends have been asked to provide it to any of their fund managing companies. One of the reasons it made me so uneasy in the first place was that I hadn't heard of it anywhere. It seemed very scammy to me.
posted by annsunny at 1:00 PM on June 19, 2012