If you were looking for a trustworthy investment advisor, Julie Jarvis seemed like a safe bet. Founder and principal of Crossroads Financial Planning, Jarvishad 20 years' experienceproviding financial planning and investment management services. By 2009, she was managing more than $22 million in assets for more than 250 clients. Her professional peers respected her enough to make her president of the Financial Planning Association of Central Ohio.

But Jarvis was keeping a terrible secret. From 2000 to early 2009, she had stolen nearly $2.7 million from a pair of elderly clients, Barbara Stradley and Joanne Rainey, both in their late 80s. Jarvis forged signatures, switched funds from client accounts to her own, created phony financial statements and lied repeatedly about what she was doing and why she was doing it.

Jarvis used stolen money to buy real estate in the Caribbean and Ohio, pay off credit card balances and pay down her mortgage. By the time FBI investigators caught on to the thefts in March 2009, most of the money was gone. Facing a possible sentence of 20 years in federal prison, Jarvis chose to take a plea bargain. In May, she pleaded guilty to one count of mail fraud. In October, U.S. District Court Judge Gregory Frost sentenced her to 66 months in prison; Jarvis also agreed to make restitution of $2.66 million to her victims, partly by forfeiting virtually everything she owned, right down to the Yamaha grand piano.

Terry Sherman, the criminal defense attorney who represented Jarvis at trial, says the sentence was fair. "She's lost everything," he says. "She lost her career, she lost her life. She comes out of prison with zero. Nothing of her past life will be around."

Jarvis has "some mental health issues," Sherman adds, stemming in part from an incident in which she was kidnapped and assaulted. "She's been suffering from untreated post-traumatic stress disorder, and she believed she had to win people over by buying things," he says. "She thought she had to buy love both from her kids and her boyfriend." At one point, Sherman says, Jarvis told her children that she had cancer, a falsehood that came to light during her prosecution.

Dale Williams, assistant U.S. attorney for the Southern District of Ohio, says Jarvis "went to great lengths to present herself as a trustworthy person." By all accounts, her fa�ade was convincing. "Those of us who knew her were in shock," says financial planner Peggy Ruhlin, a principal at Budros, Ruhlin & Roe, where Jarvis worked before launching her own firm. "There was nothing that would have made me believe she was capable of doing something like that. It's just unbelievable."

Jarvis wasn't the only Columbus-area financial advisor to be caught on the wrong side of the law in recent months. In March, Lawrence Nallie pleaded guilty to six felony charges: three counts of investment advisor fund mishandling involving more than $187,000, and three of acting as an unlicensed investment advisor ("The Affinity Scammer," August 2009).

Coming just as the multibillion-dollar Ponzi scheme of New York investment manager Bernie Madoff was making headlines, the crimes of Jarvis and Nallie got the attention of investors and financial pros around Central Ohio. Should financial planners and investment managers be more tightly regulated? Should clients require financial advisors to obtain approval before every transaction? Can anyone be trusted these days?

Legislating Integrity

It's by no means clear that more extensive laws or regulations would have dissuaded Madoff, Jarvis or Nallie from stealing. Still, federal officials are pushing for stricter oversight and tougher standards of conduct for those who invest other people's money, or advise others on how to invest their own money.

In June, President Barack Obama's administration proposed holding investment broker-dealers to the same fiduciary stan-dards that already apply to financial advisors. As it stands,advisors have a fiduciary duty to put their clients' interests before their own. For example, an advisor can't ethically recommend a mutual fund that carries a hefty front-end "load"-that's financial-speak for commission-if there's a no-load fund that's just as suitable for the client and likely will produce a better total return.

A broker isn't subject to the same fiduciary standard, which explains why you'll almost never hear a broker recommend a no-load fund. Even bottom-feeding penny stock brokers are free to peddle their high-risk, high-commission dreck with impunity, as long as they don't tell outright lies about what they're selling.

Advisory firms that manage at least $25 million are regulated by the U.S. Securities and Exchange Commission (SEC). Those that manage smaller amounts are regulated by the states. Brokers and other registered securities salespeople fall under the purview of the Financial Industry Regulatory Authority (FINRA).

Instead of a fiduciary duty, FINRA imposes a "suitability standard," which allows brokers to recommend investments that generate greater commissions for themselves-and may not perform as well as others-as long as they fit a client's goals and risk tolerance.

Regulatory reform bills under consideration in both the U.S. House of Representatives and U.S. Senate would subject everyone providing investment advice-broker-dealers as well as financial planners and investment managers-to the stricter fiduciary duty of care.

The changes have gained support from the National Association of Personal Finance Advisors (NAPFA), the Financial Planning Association (FPA), the Certified Financial Planner (CFP) Board of Stan-dards, and several other groups. In a July 14 letter to senior members of the House Financial Services Committee, the organizations said they "share the view that the highest legal standard-a fiduciary duty-should apply to all who give financial advice to clients. Over the years, we have looked on in dismay as brokers have been allowed to offer extensive advisory services, and market their services based on the advice offered, all without having to comply with the Investment Advisers Act of 1940 (Advisers Act)."

NAPFA, the FPA and the CFP have formed the Financial Planning Coalition, which advocates a professional oversight board for financial planners and advisors. "The financial planning industry has always fought to establish standards," says NAPFA Chairman Bill Baldwin. "It's important to the credibility of the industry. We're selling trust and confidence as well as advice."

"Critical at the core of our ability to serve the customer is the need to put their interest above everyone else," says FPA board member Karin Maloney Stifler, a CFP and founder of Huron-based True Wealth Advisors. "Our goal is to create a world where everyone thrives and prospers, and we can't feel good about having anything less than a fiduciary standard."

The Senate Banking Committee is considering legislation that would extend the fiduciary standard to broker-dealers by removing a section of the Investment Advisers Act of 1940 that exempts brokers who provide advice that is "solely incidental" to their brokerage activities.

In late October, the House Financial Services Committee voted to approve the Investor Protection Act, which would require any financial service professional providing investment advice to act as a fiduciary. The House bill would require the SEC to write new regulations defining the fiduciary standard for advisors.

Kristina Fausti, a blogger for fi360, the fiduciary blog of InvestmentNews, wrote that the House bill "keeps two separate sets of rules in place for brokers and investment advisors, making the ultimate goal of Ôharmonizing' investor protection rules for financial professionals harder to achieve."

A consolidated bill may be ready for Obama's signature early in 2010. Whatever its final form, it seems clear that the legislation will produce sweeping changes throughout the industry. "Our financial system in general is going to be vastly different several years from now," says Matt Stewart, chairman of the Central Ohio chapter of the FPA and an investment advisor for KeyBank.

Self-Protection

If there's an upside to recent national and local scandals, it may be heightened awareness among investors of their own responsibility to exercise care when choosing an advisor, says Richard Caw, CFP and vice president of the Sherrington Group, a Columbus-based, fee-only financial planning and investment consulting firm. Caw urges investors to take several steps that will minimize the risk of being ripped off:

Hold assets in accounts with an independent third-party custodian. Ruhlin says the only check an advisory firm should receive is for its fee; all other funds should be made payable to the brokerage firm or custodian holding the account. Budros, Ruhlin & Roe, for example, uses Charles Schwab as custodian. "The worst thing that can happen is if your advisor is also your custodian, like in the Madoff case, because you're having information reported back to you by the person who's stealing the money," says Baldwin.

Even a third-party custodian isn't a guarantee against fraud. In April, Ron Lieber, a financial columnist for the New York Times, reported that the SEC had charged his own financial planner, Matthew Weitzman, with siphoning at least $6 million from clients' accounts (not including Lieber's), even though Weitzman's firm used Schwab as its custodian. In the end, it's the client's responsibility to examine monthly account statements and red-flag transactions that don't look right.

Vet the advisor. Referrals are a great way to find an advisor, but don't stop with the endorsement of a friend or family member. Flipping President Ronald Reagan's oft-quoted enjoinder, "trust, but verify," Stifler urges investors to "verify, then trust." Treat choosing an advisor as "one of the most important hiring decisions they'll ever make," she advises. "We need to take the process very seriously."

Clients can check advisors' backgrounds with such agencies as the SEC, the Ohio Department of Commerce Division of Securities, the Ohio Department of Insurance, FINRA and the Better Business Bureau.

Credentials are important, too. To become a Certified Financial Planner, for instance, an advisor must earn a four-year college degree in a finance-related field, pass a certification examination, subscribe to the CFP Board's Code of Ethics, complete 30 hours of continuing education every two years and acquire three years of financial planning-related experience. "Obviously, not just anyone can call themselves a Certified Financial Planner, but they can call themselves a financial planner, even if they're a dog washer," says Ruhlin, a CFP and a member of the FPA, NAPFA, past chairwoman and president of the International Association for Financial Planning and member of the American Institute of Certified Public Accountants.

Stewart says he tells people looking for a financial planner "to make sure they're credentialed as a Certified Financial Planner. That's the gold standard." The FPA has aligned its code of ethics with that of the CFP board, Stewart says, and taking a fiduciary oath is a NAPFA membership requirement. "We all pretty much feel that our reputation is all that we have, and we have to put our clients' interests first to uphold our reputation. We feel very strongly about that," he says.

Of course, credentials don't guarantee an advisor's integrity. Jarvis was an active member of NAPFA, had earned a CFP and worked as a fee-only advisor. "If someone has true criminal intent, it's very difficult to stop that," Caw says.

Ask questions. Does your prospective advisor accept fiduciary responsibility? Has he or she ever faced disciplinary action? Will he submit each investment to you beforehand, or does he want "discretion" to trade your account without advance approval? Can she supply names of other clients who are willing to provide references? Honest advisors will be open to such questions, Caw says: "People who are trying to hide something will be less open."

Ruhlin agrees. "When it comes to your money, no self-respecting, competent financial advisor will ever be offended by questions," she says. In fact, says Ruhlin, she and her peers have been surprised by how little concern they've heard from potential clients. "When prospective clients come in for an interview, we try to bring it up, just bring it right there on the table and see what questions or concerns they might have," she says. But generally, clients don't dig too deep. "Let's face it. People in the Columbus, Ohio, area are in the Midwest. They're nice. I think they think the best of everything, and it's just not in their nature to bring up negative things."

Be vigilant. Check accounts regularly and reconcile reports from the third-party custodian with those from the advisor.Never sign blank or partially completed documents to be filled out by an advisor later. If you're a senior investor, ask an adult child or someone else you trust to look over paperwork and meet with your advisor.

"It's human nature to think everyone has your best interest at heart, and unfortunately, people get taken advantage of sometimes because of that," Caw says. A client who's paying attention is less likely to be victimized, says Baldwin: "Nobody ever robs a house with a barking dog in it."

No Quick Fix

Lawyers on both sides agree that as long as advisors, investment managers and brokers have access to other people's money, a few will steal. The industry is "very, very unsupervised, it's very unregulated," says Sherman, Jarvis's attorney. For financial advisors who have been entrusted with millions of dollars, "The temptation is incredibly compelling."

Williams, the federal prosecutor, says recent headlines about advisor frauds aren't necessarily indicative of an increase in such crimes. Perhaps, he says, the Ma-doff case has stimulated more publicity about frauds at the local level. Or perhaps clients and those in law enforcement are paying more attention.

After 24 years in the U.S. Attorney's office, Williams calls financial advisor fraud "just one more way people cheat other people. Whether someone is a financial advisor [or] a banker, our economic system works on a basis of trust. And when you trust people, if people are going to steal money, it really doesn't matter what line of work they're in."

Beyond the damage directly inflicted on the people victimized by a Bernie Ma-doff, a Julie Jarvis or a Lawrence Nallie are the ripple effects of their actions. "It just makes doing business difficult for the rest of us," says Stewart. High-profile misdeeds inevitably lead to tougher rules-such as the reforms Congress is debating now-and tougher rules can be burdensome.

"Even though it's just a small percentage of advisors who do the wrong thing, it's costly for the American economy as a whole, for the advisors who have more paperwork and perhaps have to hire more staff to deal with compliance changes," says Stewart. "It's unfortunate, but it is a reality, and as a consumer, you have to protect yourself as best as you can."

Jennifer Wray is a staff writer for Columbus C.E.O.