Skeptical analysis needed in the age of Madoff

Let’s face it, the regulators have shown yet again that they are not able to protect investors.  So caveat emptor, or buyer beware, is again the order of the day.  I am pretty skeptical of everything I come across in the investment world, since it is my job to protect clients.  Therefore, as Bernie Madoff prepares to spend some quality time in the big house, it is a good time to review the facts that led to his clients losing all their money to a Ponzi scheme.

Madoff produced his own client statements.  That is your first red flag.  You want as many independent parties involved as possible.  Our clients have their assets at an independent custodian, like Schwab or TD Ameritrade.  These institutions hold all client assets, and they provide independent statements to clients.  They also hold insurance policies to protect clients from fraud.

Clients of Madoff could not verify their investments from an independent custodian.  You want to be able to mutually agree to the investment plan with your advisor, and then see those investments in your account at your independent custodian.  Furthermore, it is even better if you hold publicly traded mutual funds or individual securities that mail you independent prospectus information so that you can further verify the validity of your ownership in those investments.

Lastly, Madoff claimed to employ various hedge fund techniques.  Many independent experts have publicly debunked his ability to successfully make these techniques work years ago and avoided being sucked in.  I suggest you seek simple, proven strategies that do not require a “wizard” working behind the curtain.