NAPFA copes as members are charged

The high-minded, fee-only advisers who lead the National Association of Personal Financial Advisors last week told its members that they are struggling to come to terms with allegations that three NAPFA advisers, including a former leader of the organization, have wronged clients.

Since April, three former NAPFA members have been charged by the Securities and Exchange Commission and other law enforcement agencies with a variety of allegations that focused on stealing client money or taking kickbacks as part of doing business.

“While we know that NAPFA and the vast majority of NAPFA-registered financial advisers have always worked in their clients’ best interests, there is growing concern from the entire national board that we may have simply been lulled into complacency because we haven’t experienced these issues before,” Diahann Lassus, president of the organization, wrote in an open letter to its roughly 2,100 members and “friends” of the organization. “Coming at a time when media and government scrutiny of financial advisers is at an all-time high, it’s more important than ever for us to show that we will remain a beacon of ethical conduct.”

As the stock market crested in October 2007 and then collapsed a year later, dozens of Ponzi schemes or sizable investment frauds have come to light, with the most notable the $65 billion fraud run by Bernard L. Madoff.

NAPFA of Arlington Heights, Ill., is an organization of financial advisers who charge clients fees for services. The group has long maintained that its members maintain the highest fiduciary standards when working with clients.

But despite their stated principals, it turns out some NAPFA advisers are not above allegedly committing such frauds.

Last week, a New York investment adviser, Matthew Weitzman, was accused of with stealing $6 million from clients, some of whom were terminally ill or cognitively impaired.

Last Wednesday, the U.S. attorney’s office for the Southern District of New York in Manhattan and the New York office of the Federal Bureau of Investigation said they charged Mr. Weitzman, 43, of Armonk, N.Y., with one count of investment adviser fraud and six counts each of securities fraud and wire fraud. He also faces charges from the Securities and Exchange Commission over the alleged theft of client funds. Mr. Weitzman is a former member of NAPFA.

“It’s hard to believe someone could do what [Mr. Weitzman] is accused of doing,” Ms. Lassus said. “It’s tough for us. We’re not a regulatory agency.”

According to the SEC complaint, since 2005 Mr. Weitzman used certain client accounts at AFW Wealth Advisors Inc. as his “personal piggy bank” and even tried to continue stealing from a client who had died.

He allegedly made unauthorized transfers of $433,000 from a client’s account during the last three months of 2008, while that client was terminally ill. According to the compliant, he forged the victim’s signature and sent a letter to the broker-dealer to authorize a transfer of $100,000. The letter, however, was dated several days after the client’s death, according to the SEC.

AFW is a financial planning and investment management firm with offices in Purchase, N.Y., and Natick, Mass.

Mr. Weitzman’s other victims included his elderly father-in-law, from whom he allegedly stole $3 million, and a 24-year-old law student who had inherited $1 million from her deceased parents, according to the SEC.

“We have settled the matter with the SEC, and we are reviewing the allegations of the criminal complaint,” said Marc Mukasey, a partner with Bracewell & Giuliani LLP of New York, who is Mr. Weitzman’s attorney. He declined to comment further.

Other NAPFA advisers have been charged in investment schemes.

In May, the SEC charged James Putman, who was NAPFA president in 1996 and 1997, and a colleague with taking $1.24 million each in kickbacks related to unregistered investment pools that their firm managed.

The SEC alleged that Mr. Putman, 57, the founder and majority owner of Wealth Management LLC of Grand Chute, Wis., and Simone Fevola, the firm’s president and chief investment officer, took the kickbacks from investments made by the unregistered investment pools. The agency’s order froze the assets of Wealth Management.

Mr. Putman has been cooperating with federal authorities and offered “sincere apologies to Wealth Management clients and staff for the concern and controversy this is causing,” according to The Associated Press. He did not return a call to comment.

The SEC in April charged Julie M. Jarvis and her firm, Crossroads Financial Planning Inc. of Upper Arlington, Ohio, with stealing $2.3 million in client funds to use for her benefit. Ms. Jarvis was also a member of NAPFA.

In the letter to NAPFA members, Ms. Lassus outlined changes the group intends to make in the wake of the allegations. “Having several members accused of wrongdoing is providing us the motivation and drive to actively review our standards and what we should do differently,” she wrote.

While two of the changes include the consideration of more topics at national meetings and reviewing continuing education requirements for members, one change will reach consumers and advisers’ clients. This summer, NAPFA intends to start a consumer education program that covers basic financial information to estate planning.

E-mail Bruce Kelly at [email protected].

Related Topics: Money Management Institute (MMI), National Association Of Personal Financial Advisors (NAPFA), Securities and Exchange Commission