Could your investment manager be another Bernard Madoff? Most investment managers are honest. But if someone like Mr. Madoff can run a $50 billion Ponzi scheme, investors should truly beware!
When picking an investment manager or financial planner, here?s some common-sense advice. Avoid managers who are unknown, or unregulated, or come without good referrals, or haven't been in the industry long. Of course, none of this would have saved you from Mr. Madoff. He had oodles of referrals at the highest levels, was former chairman of the Nasdaq and in business since 1960.
Still, there were other red flags. The key one: Look out for an investment manager who wants complete control of your money, and asks for checks to be made out to him or a company he controls. You are safest when the funds are held separately, in custody at a big broker-dealer firm regulated by the Financial Industry Regulatory Authority and backed by the Securities Investor Protection Corporation. You can contact that firm directly to make sure it has your money, and you can check it out through FINRA. Get copies of your statements directly from the broker. Madoff operated his own Broker Dealer. If your adviser manages your investments, but the funds are actually held at, say, Charles Schwab or Fidelity, its almost impossible for him or her to run a Ponzi scheme. Other red flags? Any broker who "guarantees" investment performance, boasts a track record that looks amazing, or who tries to hustle you aggressively into investing. Double-check any investment record that looks too steady over the long term: Ponzis boast steady and attractive returns to avoid redemptions. Had Madoff investors taken the time to carefully read their monthly statements, they could have spotted numerous pricing errors suggesting potential problems.
If an advisor only tells you what you want to hear, keep looking?a quality advisor provides a dose of reality.
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