By: Jack WaymirecloseAuthor: Jack Waymire Name: Jack Waymire
Email: jack@paladinregistry.com
Site: http://paladinregistry.com
About: Jack writes for the InvestorWatchdog website and Worth magazine. He worked in the financial services industry from 1976 to 2004. For twenty of those years he was the president of a Registered Investment Advisory firm and a Broker/Dealer. Jack is the author of Who's Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and is a co-founder of PaladinRegistry.com.See Authors Posts (87) | June 20, 2009 | Who Can I Trust?

There is a lot of content about Jim Putman, NAPFA’s former president, on the Internet. If you don’t know, the SEC has accused Putnam and another employee of his firm with accepting undisclosed kickbacks of $2.4 million on client investment pools and violating their fiduciary duties (http://www.denverpost.com/crime/ci_12549352).

Apparently, Putman and his firm put relatively conservative clients into viaticals and illiquid real estate limited partnerships. The SEC claims Putman was being paid to route his clients into more aggressive investments and he collected excessive fees on over-stated assets.

How did he over-state assets? Putman’s firm acted as the custodian for investor assets so they were in a position to control the content of financial reports. This is a major red flag for investors. Advisors should NEVER come in contact with client assets. There should always be a third party custodian holding assets and producing independent reports.

Back to NAPFA. This is an excellent association and its membership includes many of the best advisors in America. It’s unfortunate that Putman was president of NAPFA more than ten years ago, but that discontinued relationship has nothing to do with the quality of NAPFA and its fee-for-service membership.

Investor damage occurred when Putman used his role as former president to make investors feel safe. This false sense of security helped him sell bad advice, bad products, and maximize his own income. Bernie Madoff used the same sales tactic when he described himself as the former president of NASDAQ.

Naive investors believe former presidents of reputable organizations must be trustworthy. Now you know that’s not always true. Unethical people can achieve high positions if they are personable and motivated.