“In the next couple years, people will be
very careful, but as greed comes back
in, there’s a danger that some investors
won’t be asking the tough questions.”
—BRUCE LANGER, TEALWOOD ASSET MANAGEMENT
get information on that firm as well. The more trans-
parency you can get, the better.”
Although some investment managers do act as
custodians of a client’s assets, it’s a better idea for
a firm to employ a separate, unaffiliated custodial
company, since that firm’s compliance policies and
procedures can safeguard against fraud.
DON’T SETTLE FOR A
HANDSHAKE, EVER:
Another Madoff specialty was the handshake deal,
Sainsbury says, and some firms still try to evoke
that “casual deal-making” vibe, putting the investor at risk.
He notes: “Look closely when a firm doesn’t
require any paperwork, claiming that they’re trying to streamline the process. Some ask for money
to be wired to them, and they’ll call back to let the
investor know how things are going. Just remember that if there’s no paper trail, there’s probably
no oversight.”
BE REALISTIC:
Wealth building doesn’t happen overnight, despite
the promises of Ponzi operators, notes Kim Brown,
president of JNBA Financial Advisors in Minneapolis. It might be tempting to look for quick, high returns, but in general, she advises that investors think
long term.
“Some of these Ponzi schemes worked because
people didn’t have a solid plan that was realistic,”
she says. “Sometimes people think they’ve found
the Holy Grail, but you have to be smart enough to
ask why an advisor seems to be succeeding at such a
surprising rate.”
QUESTION ANTIQUATED SYSTEMS:
In these uber-connected times, a professional website is crucial for any kind of
business, but investors need to look beyond the graphics to what financial firms
are actually using, Sainsbury advises.
Madoff was keeping records on handwritten ledgers and a financial program
that was woefully outdated. Also, lack of
online access to accounts is another red
flag, Sainsbury adds: “If someone has antiquated account statements or lack of online
access, it doesn’t mean they’re running a
Ponzi scheme, but it’s worth examining.”
DO SOME HOMEWORK:
Some advisors claim that certain investments are
“limited time only” deals, and although this is sometimes the case, it shouldn’t prevent an investor from
thoroughly researching an advisor, says John Foster,
JNBA’s Senior Investment Strategist. Investors can
look up an advisor through the Financial Industry
Regulatory Authority ( finra.org) to see whether
there have been any compliance issues or other
» Extra CrEdit
Some financial firms are going the extra mile to
assist clients concerned about potential Ponzi
activity. JNBa, for example, has started a “New
Values Campaign” designed to increase fee
transparency in the industry. the firm also sent
out a letter to clients after the Bernie Madoff story
broke, explaining the ins and outs of the deal, how
it could happen, and why it wouldn’t happen to
them. it’s likely that as more Ponzi schemes get
uncovered, clients of all financial firms will demand
this type of dialogue, Foster notes.
