Some of the world’s most intelligent and financially savvy investors and
institutions appear to have been bilked out of over $50 Billion by Investment
Advisor Bernard Madoff. How did this happen and more importantly, what can
you do to avoid this from happening to you?
Bernard Madoff is not the first, nor will he be the last, financial advisor to
swindle people, but there are some basic things you can do to reduce the odds of
your money vanishing with your advisor.
Hire an independent investment advisor. An independent investment
advisor is one who is not affiliated with a broker/dealer. Registered
representatives (RR) of broker/dealers work for the broker/dealer, not you.
They will most likely have incentives and training to sell products not to look
out for your best interests. A more subtle point about RRs is that they are only
held to a “suitability” standard of care. So long as the products they sell you are
suitable, they have done their job. A much higher legal standard is set for
investment advisors and their representatives (IAR). IARs are held to a
“fiduciary” standard of care. This means that the clients’ interests come first.
Dual registration (as an RR and IAR) is allowed in many states, but only makes
things more confusing. If you want independent advice do not hire an RR.
Make sure you have an independent custodian. The custodian is the
one who actually holds your investments. In many cases, this is a broker/dealer
that executes trades for you. Here is the important point, the custodian (and
not your investment advisor) should send account statements directly to you.
This will make it much more difficult for your investment advisor to manipulate
the performance of your account.
Make sure you have unaffiliated investment managers (mutual funds,
separately managed accounts, exchange traded funds). If your investment
advisor also acts as an investment manager, he could manipulate your
performance without your custodian’s knowledge.
While these steps will not eliminate the possibility of fraud by your investment
advisor, it will certainly reduce the odds. You have literally thousands of
financial advisors to choose from to provide you with investment advice. If you
are looking for unbiased advice, make sure you hire an independent advisory
firm like Honu Wealth Management.
institutions appear to have been bilked out of over $50 Billion by Investment
Advisor Bernard Madoff. How did this happen and more importantly, what can
you do to avoid this from happening to you?
Bernard Madoff is not the first, nor will he be the last, financial advisor to
swindle people, but there are some basic things you can do to reduce the odds of
your money vanishing with your advisor.
Hire an independent investment advisor. An independent investment
advisor is one who is not affiliated with a broker/dealer. Registered
representatives (RR) of broker/dealers work for the broker/dealer, not you.
They will most likely have incentives and training to sell products not to look
out for your best interests. A more subtle point about RRs is that they are only
held to a “suitability” standard of care. So long as the products they sell you are
suitable, they have done their job. A much higher legal standard is set for
investment advisors and their representatives (IAR). IARs are held to a
“fiduciary” standard of care. This means that the clients’ interests come first.
Dual registration (as an RR and IAR) is allowed in many states, but only makes
things more confusing. If you want independent advice do not hire an RR.
Make sure you have an independent custodian. The custodian is the
one who actually holds your investments. In many cases, this is a broker/dealer
that executes trades for you. Here is the important point, the custodian (and
not your investment advisor) should send account statements directly to you.
This will make it much more difficult for your investment advisor to manipulate
the performance of your account.
Make sure you have unaffiliated investment managers (mutual funds,
separately managed accounts, exchange traded funds). If your investment
advisor also acts as an investment manager, he could manipulate your
performance without your custodian’s knowledge.
While these steps will not eliminate the possibility of fraud by your investment
advisor, it will certainly reduce the odds. You have literally thousands of
financial advisors to choose from to provide you with investment advice. If you
are looking for unbiased advice, make sure you hire an independent advisory
firm like Honu Wealth Management.
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