Bernard Madoff ‘Made Off’ With Investor Money –
How Other Consumers Can Avoid a Similar Fate
Bernard Madoff’s alleged Ponzi Scheme stands as an example of how the financial services industry has failed to protect the best interests of consumers. It highlights the increased need for consumers to proceed cautiously when working with an advisor and the importance of asking pointed questions before hiring a professional.
As the post-Madoff era begins and the federal government and industry regulators decide the best course of action to protect consumers, people need to ask the right questions of an existing or potential advisor.
The National Association of Personal Financial Advisors (NAPFA), the country’s leading association of fee-only financial advisors, encourages consumers to take the time to get to know an advisor and gauge his or her commitment to placing clients’ interests first.
Find out how the advisor and his or her firm are compensated. Fee-Only compensation has the fewest conflicts of interest, but there are other acceptable methods as long as full disclosure takes place up front. It’s important to know if an advisor will make additional money if you follow certain recommendations.
You should always know where your money and securities are actually held. Most reputable advisors will use an unaffiliated custodian for the safe keeping of your assets. This simple check and balance could have saved the Madoff investors millions by bringing the problem to the forefront earlier.
Legally, all clients are entitled to a copy of the firm’s Form ADV Part II or brochure. It’s a compliance document that can be pretty dry, but it holds a lot of important information and ultimately shows that the firm is registered with the SEC or state.
Consumers can access a Financial Advisor Checklist and Financial Advisor Diagnostic on the NAPFA website by visiting www.NAPFA.org and clicking on the Tips and Tools button in the Consumer Information section. The Diagnostic tool includes an answer key to help consumers understand NAPFA’s recommendations for the most appropriate answers to the questions.