Episode 60: How to Avoid Financial Advisor Fraud

Segment 1: 

HELLO Lower Alabama! Hello Gulf Coast! Welcome in. Welcome to Coasting in Retirement! That’s. Right. Thanks for joining us today, Josh Null here, joined by the one and only Michelle Lee Melton…Michelle, how are you doing? We are back in Coastal College’s recording studio, beautiful downtown Fairhope, ready to put together another great show for those of you tuning in!

Michelle and I are here to discuss financial topics relevant to those of you in or near retirement, living your best life along our part of the gulf coast. Here’s what we’ve got in store for you today: First segment – deep dive on our topic of the day. 2nd segment - at about 30 minutes past the hour - “Michelle with the Headlines of the Week”. Then at roughly 50 minutes past the hour, stick around for our 3rd segment, we call it” Josh’s Crystal Ball and Big Mouth”. So buckle up, we’ve got a lot to get to!

Quick background on me for those new to the show. Again, my name is Josh Null, I am a fee-based financial advisor, I hold my FINRA Series 65 securities license, and I am the owner of Gulf Coast Financial Advisors, that’s a 100% locally owned, 100% independent investment management and financial planning firm with offices in Fairhope, Orange Beach, and Mobile! You can find more information on me and the team at Gulf Coast Financial Advisors by visiting our website gulfcoastfa.com, or feel free to give us a call at 251-327-2124. If you missed that contact info, get a pen and pad ready because we will repeat our contact info several times throughout the show! 

So, Michelle, when you’re not watching Below Decks, you like crime investigation shows, right? Alright, be honest, when you first met me and I told you I was a financial advisor, did you have any flashbacks to American Greed or anything like that? (Michelle). That’s fair and you are certainly not alone. Unfortunately my business has had it’s fair share of bad actors, and whether those of us that try to do the right thing like it or not, it reflects poorly on all us, especially with investor trust early in a relationship. 

On that note Michelle, I believe you are aware that there was fairly recent news concerning a fraud and a  financial advisor located in Point Clear, which for listeners not familiar with our area, is what, about 10-15 minutes south of downtown Fairhope, on the Bay, correct? (Michelle) And possibly a place we want to live, right? (Michelle) Basically, a local man was sued by over 30 Baldwin County residents for allegedly stealing tens of millions of dollars through a hedge fund that he managed. I want to tread carefully because this lawsuit is ongoing and people are innocent until proven guilty, so I am going to avoid using the financial advisor’s name just in case, but listeners, if you’re curious, you can find out more information for yourself by googling “point clear al financial advisor fraud lawsuit” or something like that. 

https://www.lagniappemobile.com/news/baldwin-investors-sue-hedge-fund-allege-tens-of-millions-lost/article_d7bda32d-9050-439d-9b1b-ec7eab3c7764.html 

While this story didn’t make regional news, at least not yet, it certainly made local news, I actually learned about when my chiropractor asked me if I knew anything. And for the record, while I certainly recognized some of the names suing this guy, and I feel terrible for them, I had never heard of this guy before, which I can tell you listeners that after 11 plus years of being fully immersed in our local community both professionally and personally, is a red flag in itself. I know most of the independent players in financial services in our area. Yet, I had never heard of this guy. 

Anyway, Michelle and I thought this would make a good case study, so the title of today’s episode is “How to Avoid Financial Advisor Fraud”. I should probably expand that to include investment managers and hedge fund managers – basically anyone that manages other people’s money. In this episode we’re going to detail some of the boxes you want to check with anyone with which you wish to invest, AND, discuss the red flags to look for, some obvious, some not so obvious, unless you know my business well. 

Let’s first detail the ways “advisors” steal clients’ money:

1. The first is Direct Theft, better known as a Ponzi Scheme, which is what the Point Clear advisor is accused of, and the one that tends to make the biggest headlines: This is pretty simply: Advisors take client money and use it for personal gain or to pay off earlier investors. (Custodians prevent this by holding funds and providing direct statements). Example: Bernie Madoff – he was the custodian and the manager.

2. Forgery & Unauthorized Transfers: Forging client signatures on withdrawal forms or redirecting funds to accounts they control. (Custodians have procedures, call backs, and verification steps to prevent this).

3. Excessive Trading (Churning): While less common with fee-based advisors, commission-based brokers might trade excessively just to generate commissions, eating into client assets. (Transparency of statements and understanding fee structures helps).

4. Selling Fictitious Investments: Creating fake investment opportunities or "private placements" that don't exist. (Due diligence, checking with regulators, and always using a custodian for legitimate investments are key).

Terrible stuff, right? Especially for you listeners that have worked your arse off for years to build a nest egg – one of your worst nightmares is picking a scam artist and waking up one day with all of your money stolen. It’s a legitimate fear, and unfortunately for our part of the Gulf Coast, what allegedly happened to the Point Clear investors is not the first time fraud has hit our area. There was the loan brokerage guy in Robertsdale that promised investors millions of dollars in return for large upfront investments, only to steal almost every last penny, then there’s one that I have some first hand experience with in Mobile, this time the guy didn’t steal the money outright, what he did was convince clients to buy horrible, unsuitable, illiquid investment products that paid him high commissions and left them with millions of dollars in losses. I just happened to sit in on a client meeting years ago with fellow financial advisor friend of mine, he was training me, in this meeting a couple in their 60’s had lost about $750k of their $1M portfolio with this guy in Mobile. I bet some of our listeners know whom I’m talking about. Anyway, I got so upset at that meeting, my financial advisor trainer had to tell me to chill out…while this was my first time learning of this joker, apparently this was old news to him. Gross, right Michelle? 

https://www.al.com/live/2014/02/charges_in_multi-million_dolla.html 

https://investorclaims.com/blog/meyer-wilson-investigating-claims-against-former-broker-jerry-mccutchen/ 

https://whitesecuritieslaw.com/investor-alert-jerry-mccutchen-barred-from-securities-industry/ 

Gross, right Michelle? I would love to tell you all that there is an impenetrable force field to protect you against all of this nonsense, but unfortunately, there isn’t. I mean, we’re not even talking about the shenanigans that commissioned-based IMO-backed annuity shops pull on investors. At least with most of those guys, and there mostly guys, at least there’s often a reputable insurance company backing the product they sell. No, the level of fraud we just discussed is much worse. But there are a couple of key things that investors can do to protect themselves, and for those of you leaning in listening, grab a pen to jot this down, because it’s important. 

First, you need to know if the person you’re talking to even has a securities license. We don’t have time to list all of the applicable securities, but just remember most of them start with a 6: 6, 63, 65, 66, etc. I have my Series 65 securities license. Doesn’t mean I’m perfect or infallible, but’s it’s an important first step. You can, and should be able to, find this information on a financial advisors website, there should be a hyperlink to what’s called an “ADV disclosure”, usually at the bottom of the page, like it is on my website Gulfcoastfa.com. If you can’t find the ADV on the website, first, close your browser and call us, but if you insist on moving forward with this financial advisor, then go to a site hosted by FINRA called “Broker Check”. In general, if your advisor is commissioned-based for compensation, you’ll find their info here; if their fee-based, Broker Check will direct you to the SEC’s site. It also gives you the work history of your advisor. Some advisors are what is called dually registered, so they may have info on both sites.  

Important note listeners: the guy in Point Clear that held himself out as a hedge fund manager was NOT securities licensed. And I checked multiple ways. Huge, huge red flag for anyone that used titles such as “capital management”, “capital advisors”, “hedge fund”, etc. 

Alright, let’s say you check your guy or gal out and they’re securities license. Good. But that’s just the first step. Your 2nd step is to check on Broker Check or the SEC’s site for what’s called “disclosures”. In general, disclosures are client complaints. Note this – just because an advisor has a disclosure doesn’t make them a bad choice for an advisor, as we’ve discussed on this show in the past, the bar to chin for a client to make a complaint about a financial advisor is shockingly low. And unfortunately, there are companies in our industry that will try to stain the reputation of a departing advisor just for spite. What you’re looking for is a history of disclosures, especially around the handling of client money. 

Ok, to summarize, make sure your advisor has the appropriate securities license, and that they don’t have a history of client complaints. But guess what? That still doesn’t mean they can’t steal your money. You know who else was appropriately securities licensed? Bernie Madoff. That leads us into our final talking point for this segment, and it’s a big one. 

In addition to knowing where to find securities licensing information, there’s 2 more terms that investors must know and understand: custody and discretion. No, we’re not talking about who gets the kids in a divorce or not being the town gossip. We’re talking about the primary reason you see horror stories about financial advisors and investment managers run off with clients’ money. In fact, when I see a news story about financial advisor fraud, my bet is 90% of the time is comes down to one of these terms. So it’s critically important you understand what both mean. Let’s define both: 

Custody vs. Discretion:

Custody: Who actually holds your assets, if if there just electronic dollars. With few exceptions, a financial advisor should not custody your assets. They should be held by a third-party custodian, such as Charles Schwab, Fidelity or Pershing, to name the 3 biggest custodians. 

Discretion: When an advisor has the authority to make investment decisions on your behalf without seeking your approval for each trade. This is common and allows for efficient portfolio management, but it should always be coupled with the use of a third-party custodian.

The Danger Zone: The biggest fraud risks often arise when an advisor claims to have both "custody" and "discretion" – meaning they directly hold and manage your money outside of a major, regulated custodian. This is what allowed many Ponzi schemes to operate. This is how Bernie Madoff stole so many billions.

Why is a Custodian Important? They provide an independent layer of security. Your advisor has access to manage your funds, but not to take them or transfer them to themselves. You receive statements directly from the custodian, ensuring transparency.

Red Flag: Never write a check directly to your advisor or their personal company for investments. Checks should always be made out to the independent custodian.

Let’s end this segment with Key Takeaways for Protection:

1. Always verify your advisor's credentials (FINRA BrokerCheck, SEC IAPD)

2. Insist on a reputable third-party custodian.

3. Review your statements directly from the custodian.

4. Understand all fees and how your advisor is compensated.

5. Be wary of "guaranteed" high returns or pressure tactics. In fact, run away if a financial advisor promises you any type of return. It’s one thing to illustrate a hypothetical on a fixed index annuity illustration, those often prove worthless but at least there’s an effort at transparency there. These knuckleheads that promise you 8% guaranteed are lying to you, period. 

Listeners, if you’re concerned about making the best decision when choosing a financial advisor, especially those of you that have heard the horror stories of fraud and are nervous, we encourage you to reach out to us. You can call us at 251-327-2124, or find us on our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. We have several meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, a 30 minute zoom, or my preference, an in-person meeting at any of our 3 office locations: Downtwon Fairhope, Orange Beach just down the road from the Wharf, or in Mobile off Dauphin St and I-65. Reach out to us - we would love to meet you! 

Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance, investments and money. Every week we scour the internet for financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Join us after the break to hear Michelle and I discuss this week’s relevant headlines in our “Michelle with the Headline of the Week” segment. Stay tuned!

1. Alright Josh, keeping with our super fun theme of highway robbery, let’s start with an article from one of your favorite sites, InvestmentNews. They have a recent article titled “Ex-Pennsylvania RIA hit with 8 year sentence over $23M client fraud”. The financial advisor, Scott Mason, received a sentence of 97 months in prison followed by three years of supervised release, according to the Department of Justice. He was also ordered to pay nearly $25 million in restitution to defrauded clients and more than $2.3 million to the IRS. Mason was charged with misleading clients in a decade-long scheme to fund international travel expenses, country club fees, and other personal expenses, according to three government agencies. I picked this article because upon checking Mason’s background, he seemed to check a few of the boxes we listed in the first segment: he was securities licensed, didn’t have a history of disclosures, and according to the news report, claimed to operate as a fiduciary. However, and it’s confusing, but it appears that Mason stopped using a third party custodian back in 2007. How did Mason get away with this for so long? 

https://www.investmentnews.com/regulation-and-legislation/ex-pennsylvania-ria-hit-with-8-year-sentence-over-23m-client-fraud/261104 

2. Lets stick with InvestmentNews. They have another (jeez) recent article titled “SEC seeking sanctions for a former Florida Investment advisor alleged $17M fraud”. Advisor Andrew H. Jacobus' alleged scheme included misappropriating client assets, providing falsified statements, and running a Ponzi-like structure. According to the SEC, 62-year-old Jacobus raised approximately $39.7 million from 40 clients between May 2015 and April 2024 under the guise of investing in IPOs and private investment funds. He also charged with targeting vulnerable targets, including the elderly and religious institutions, and allegedly used fake investment promises to lure unsuspecting victims into his scheme. We’ve already discussed how guys like this get away with theft like this for so long, until they don’t, but I would like you to discuss why Jacobus’ targeted clients is so egregious. 

https://www.investmentnews.com/regulation-and-legislation/sec-seeking-sanctions-for-former-florida-investment-advisor-over-alleged-17m-client-fraud/260700 

3. We went a little long in the opening segment, so we just have time for one more news headline. Since you’re all riled up with all of these stories of both convicted and alleged wannabe robber barrons in your industry, I thought I would give you the cherry on top. CNBC Business has a fresh off the press article titled “Time for 10% to 40% of portfolio in crypto, say financial advisor Ric Edelman”. When I started reading this article, I thought, who cares what this one financial advisor has to say about crypto, but this Edelman guy is kind of a big deal in your business, correct? (Josh – explain Edelman Financial Engines, nearly $300B in AUM). So since we’ve talked all about fraud, I thought we would discuss an investment that has never shown any signs of fraud or investor abuse with crypto…er…wait a minute. Isn’t crypto infamous for investors’ losing billions to outright theft? 

So, let’s be fair to start. One of the related articles I read said that Edelman specifically mentioned Bitcoin and Ethereum, 2 of the most established cryptocurrencies, for whatever that is worth. But a casual investor will hear a guy with as much investing creditability Edelman and will assume he means all crypto, including the total crap show that is NFT’s and Memecoins. Crypto is greater fool theory of investing, and as long as it keeps generating new fools for it’s wood chipper, this nonsense will continue. I will remind listeners that we are about 18 years into this crypto thing, and I will ask them when the last time is they used crypto or blockchain for anything in their daily lives. The problem with guys like Edelman, and you know that I know some of them, right Michelle? (Michelle) is that they get so far removed from the viewpoints of regular investors that they lose total touch with reality. They also believe their own BS and like having attention on them and making crazy predictions. (wait a minute…so do I). Anyway…

https://www.cnbc.com/2025/06/27/bitcoin-hodl-ric-edelman-wants-10percent-40percent-portfolio-crypto.html 

Listeners, if you would like to have a no BS conversation about your money with some that hasn’t lost touch with reality, then us a call at 251-327-2124, or find us through our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. We have several meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, all the way to an in-person meeting at any of our 3 office locations: Downtown Fairhope, Orange Beach, or Mobile, near the intersection of Dauphin St and I-65. Reach out to us - we would love to meet you! 

Alright folks, coming up next: Josh’s Crystal Ball and Big Mouth. What have been some of my predictions? Have I been right? Was I ever wrong? How wrong? What do I think is going to affect investors in the near future, or maybe the distant future? We talk about all of these things and poke a little fun at my big mouth. Stay tuned! 

Segment 3 – Josh’s Crystal Ball and Big Mouth: 

Welcome back! Your host Josh Null here, alongside co-host Michelle Lee Melton. So, I am opinionated, I have strong opinions at times, I would say a radio show host that isn’t probably wouldn’t be very interesting to listen to. And I am paid in my profession to offer professional guidance and opinions to my clients, otherwise what use am I? Just replace me with AI. I like making predictions, and while I usually proved right, there are times I swing and I miss. Want to hear me eat a little crow? Then let’s get at with Josh’s Crystal Ball and Big Mouth.  

OK Josh, I don’t know if you’ve heard, but I’ve been a little busy this week, so instead of a long set up, I’m just going to ask you for a few rapid fire predictions. Ready? 

1. The Nappie Award winners will be announced in a couple of weeks. Will this radio show win the award for Best Lifestyle Radio Show?

2. We recorded an episode a few months ago where you predicted the S&P 500 would end the year at 6200. The S&P went above 6200 this week, and there is still 5 months to go. Would you like to revise your prediction? 

3. Lastly, will the re-launched Amtrak “Mardi Gras” rail service from Mobile to New Orleans to a hit, or giant waste of time and money? 

Well, listeners, I hope you enjoyed a little peek into how we form our opinions and make predictions. We invite you one last time, if you would like to have a no-pressure, no-obligation conversation about your investing goals and retirement dreams, you can call us at 251-327-2124, or find us through our website gulfcoastfa.com. One our site, click on the blue button in the upper right-hand corner to set up a meeting on my calendar. We have several meeting choices for your convenience – it can be as simple as a 15-minute introductory phone call, all the way to an in-person meeting at any of our 3 office locations. You can find GCFA offices in downtown Fairhope, or Orange Beach off Canal Road, or in Mobile off Dauphin St and I-65. Reach out to us - we would love to meet you! 

That’s our show for this week! I want to give a huge thank you to my lovely co-host, Michelle Lee Melton, thank you to our show sponsor, Providence Partners and Jay Stubbs, thank you to our two awesome radio stations, FM Talk 106.5 out of Mobile and WHEP 92.5 FM & 1310 AM out of Foley, many thanks to the provider of our show music, local band Sloth Racer, huge thank to the show producer, my son Payton Null, and as always my sincere appreciation for all of your out there that have been listening and joining us on this journey. We would love to be a part of your journey as well! Remember – votenappies.com! Until we talk again, have a wonderful and productive week. This has been Coasting in Retirement with Josh Null! 

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