Nubility.Net

our biggest Loss in Identity theft could be your retirement, because you aren’t protected from brokerage or mutual fund thefts, as you are with credit cards and banks. This article from MSNBC (via Digg) gives an example of the problem. This entry lays out the risks and tells you how to protect yourself.

Today, its more likely that your retirement is your biggest asset rather than your house. Because that mutual fund/brokerage account is a liquid asset, its possible for a theif to transfer that money out as part of an identity theft, just like your bank account. The risk is that unlike your bank account and your credit cards, your mutual fund/brokerage account are not protected against fraud. The only way you are likely to have the brokerage or mutual fund restore your account is to show that they screwed up. You are not insured or indemnified against identity theft losses from your brokerage/mutual fund account.

Protecting Your Retirement

However, its possible and prudent to protect yourself against such losses. Some mutual funds/ brokerage accounts allow you to specify

that assets can only be redeemed — or have the redemption information changed — via a notarized signature guarantee . If you are not retired and making regular redemptions, there is absolutely no reason not to do this. After all, if you aren’t going to need the money for ten or twenty years, why give an online theif access to it earlier?If you are reitred and making regular withdrawals, you should still have your redemptions changed only via a signature guarantee. You can always change the direction in a couple of days if you need a lot of cash. If anything, its more important for the retired investor to take this precaution, because loosing your IRA/401k would hurt even more than It would for the working person.

What if Your Mutual Fund Company Doesn’t Provide for Signature Guarantees?

If your brokerage/mutual fund company doesn’t provide for signature guarantees , all is not lost. The solution is probably to send them a letter of instruction placing restrictions on redemptions to your account. This has two purposes. First, it gives the mutual fund company the instructions it needs to prevent the theft of your account. Second, in the event of a loss, it allow you to squarely place the blame on your mutual fund company in the event that the worst happens, improving your chances of having the mutual fund company making you whole.

I’d love to hear your thoughts on this article.