How Advisors Can Safeguard Client Funds — and Recognize and Prevent Fraud

Travel advisors (and suppliers) are entrusted to safeguard their client’s funds. And although the majority of travel professionals handle this properly, unfortunately, there are reported instances of fraudulent conduct that can lead to civil and criminal problems. This is one of the consequences of the sale of travel being relatively unregulated.

Recently, a DMC in Africa experienced financial disaster and was unable to furnish trips that had been paid for long ago. The story went something like this: A DMC with a good reputation was trusted by advisors to provide luxurious safari experiences. Advisors received quotes for bookings, clients approved the trip and, in most cases, paid the supplier directly via wire transfer. The DMC sent confirmations that looked legitimate, showing payments to lodges and suppliers. Somewhere along the way, the DMC fell into financial trouble and started using deposits from customer A to pay for customer B’s trip, as customer B was traveling sooner than A. (The idiom "robbing from Peter to pay Paul" comes to mind.) 

This hide-the-money scheme worked for a while — until there was no money to pay for customer A’s trip. Advisors found out that customer A’s money was taken for improper use, while clients were totally in the dark, and had to tell customer A what happened while worrying about the consequences.

The advisors delivered the news, and customer A’s response was predictable: Blame the U.S. advisors and demand they “fix” (read: pay for) the problem. 

If this scenario has not happened to you, count your blessings. Every advisor is one email away from learning news like this. 

Preventing Trip Fraud: What Steps to Take

So, what can you do, if anything, to prevent this disaster?

For starters, vetting suppliers remains the most important piece of the vendor selection process. Most advisors trust their instincts, relying upon recommendations and past experiences. But can you do more?

Doing more definitely takes time and effort, but advisors, host agencies and consortia can ask suppliers for proof of financial conditions; demand funds be held in escrow — or at least earmarked only for the particular traveler’s trip — double down and make sure downstream suppliers actually received payment; and shy away from wire transfers when possible (so that a chargeback becomes a possible solution to the problem).

You might ask yourself: Can I insure myself against this mess? Maybe, but not through your traditional E&O policy. The agency in my story actually had “crime insurance,” but it did not cover “vendor theft.” Talk to your insurance brokers, as it is possible to actually cover “vendor theft,” and you will certainly sleep better knowing you’re protected.

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Now that we’ve covered bad supplier conduct, let’s not kid ourselves — some advisors have a misguided moral compass, too. If your agency has employees or independent contractors, make it a clear policy that money is only to come in directly to the agency, rather than a customer using platforms like Zelle or Venmo to pay the advisor for the trip. A prosecutor or judge will have no problem concluding that travel advisors (and agencies) have a fiduciary duty owed to the client. 

Simply put, you have a legal obligation to act in the best interests of your client. Breaching the duty can lead to civil lawsuits or criminal prosecution for charges that can actually land you in prison (for charges such as wire fraud, theft and embezzlement, to name a few). Never fall into the trap that the African DMC in the story did; do not use funds to cover a different trip or personal expenses.

If the courthouse doesn’t scare you enough, the court of public opinion is a powerful tool that customers can use — bad reviews, calling the local news channel to expose the conduct, complaints to the attorney general’s office of your state and even picketing in front of your building (all things that have happened to clients of mine).

Like any other profession, a few bad apples can spoil the bunch. Since our industry is relatively unregulated (for better or worse), we need to police ourselves. Stay vigilant, be honest, and do the right thing.