by Archie M. Richards, Jr., CFP^®
February 18, 2002

Over a 15-year period, Lehman Brothers broker Frank D. Gruttadauria stole about a hundred million dollars from his customers. Here's how to keep broker theft from happening to you:

• Always make your checks payable to the brokerage firm, never to the broker.
• Never allow your broker to enter a trade without your prior approval.
• Find out the broker's prior record of difficulties with clients. Call the National Association of Securities Dealers at 800-289-9999 or go to www.nasdr.com/2001.asp and click on "Perform an On-Line Search."
• Make sure your monthly statements are received from the brokerage firm, not the broker. Are the statements printed in black and white, when they once were colorful? Do they show less detail than before? Are the dollar amounts rounded off, when they used to be carried out to the penny? Are cash payments you made to the firm omitted from the statement? Is the account regularly outstripping the market by a wide margin? All of these are red flags.
• If you have suspicions about your broker, contact the firm's compliance officer.

Ruth wants to invest $2,000 for each of her six grandchildren and asks what would be a wise investment.

I suggest the TIAA-CREF Equity Index Fund, Ruth. It acquires all 3,000 of the stocks selected by the Frank Russell Company for the Russell 3000 Index. The index reflects 98 percent of the value of the U.S. stock market. The TIAA-CREF Equity Index Fund will equal the record of the entire market. In the long run, that record will be very positive.

The fund charges no commissions. Annual expenses are low, and the minimum investment is $1,500. For more information, go to www.tiaacref.com or call 800-842-2776.

Following Enron's deceptions, Jerry writes that "CEOs make themselves rich while bleeding the shareholders dry. My money is going into bank CDs. At least I can get my money back."

All CEOs try to make themselves rich, Jerry. But most of them earn the bulk of their money holding stock in the company - the same stock the shareholders own. If they bleed the shareholders dry, they hurt themselves.

The abovementioned TIAA-CREF Equity Index Fund will grow considerably faster than bank CDs. It holds so many stocks (3,000) that the failure of a few has little impact.

Brent writes "I've been hearing a lot about pure trusts. What are they?"

They're shams, Brent. You'll pay a lot of money to a con artist who sets up a trust for you. Then you're supposed to say to the government, "I'm an American. I have a right to own property, and you can't tax me any more."

The government won't take kindly to this. It will impose tax, add interest and penalties, and probably furnish you with jail time to think it over.

Fran writes that her estate-planning attorney is also the trustee of her revocable living trust. She wonders whether a person serving as both attorney and trustee is customary or advisable. Fran has an adult child.

Naming an attorney as trustee is not uncommon, Fran, but it is inadvisable. Just because a person has a law degree doesn't mean he's angelic. Look at Congress.

A trustee has complete control of the trust property. He can tilt its management to benefit himself instead of fulfilling the trust's purposes. He might, for example, invest trust assets in a problematical investment that pays him substantial commissions. Is an attorney more likely to do such a thing than a member of the family? The answer is probably yes.

Consider serving as your own trustee with your child as successor trustee. Trust departments of banks seldom engage in hanky-panky. One of them could serve as co-trustee with your child.

Don asks, "After the sudden death of a home owner, who pays the mortgage? We are already mortgaged to the hilt."

Normally, the new owner would pay the mortgage, Don. But the house can be sold. A real estate agent, the bank that holds the mortgage note, and a credit counseling agency could be helpful. Good luck.