Getting Help Without Getting Taken

Financial Planners: Some Tips For Avoiding Madoff-Type Fraud (checks and balances)

Posted on Tuesday, June 21, 2011


When purchasing investments, make sure you are writing checks to a third-party custodian, like Fidelity Investments Co. or Charles Schwab & Co., not to your financial adviser directly.
Call the independent institution to verify it's serving your adviser, and never send checks anywhere but that firm's business address.
Don't allow your transaction confirmations and account statements to be mailed to your financial adviser instead of you. You should receive account statements from a third-party custodian.
Find out what auditors your adviser's firm uses. Auditors are crucial, since they verify the existence of the assets your adviser manages. Each state has its own database to check if an auditor is licensed. (While you're at it, check if your adviser has switched accounting firms or custodians recently, a move that could indicate trouble with the previous firm.)
Ask about other kinds of oversight: how the advisers conduct due diligence on any money managers they recommend investing with. Do they check out the managers' balance sheets, and how their actions line up with their investment strategies? Do the advisers have a personal relationship with the managers or get kickbacks from referring you?


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