Madoff-proof your portfolio: five questions to ask your investment advisor

Transparency goes a long way toward establishing a strong working relationship, and for those looking for a secure financial future, trust is of the utmost importance.  

Transparency goes a long way toward establishing a strong working relationship, and for those looking for a secure financial future, trust is of the utmost importance. That’s why the crimes committed by Bernie Madoff, who defrauded thousands of clients as part of his Bernard L. Madoff Investment Securities scheme, made so many people hesitant to work with an investment firm. If a former NASDAQ chairman perpetrated the largest financial fraud in American history, it’s no surprise that investors might feel uncomfortable handing over their savings to just anyone.

The operation Madoff established was essentially a house of cards that inevitably collapsed when it ran out of fresh sources of money to fuel the ruse. Most crimes like this— “Ponzi” schemes, or operations that utilize funds from incoming investors to pay returns to existing ones—unravel quickly, as investors looking for quick returns ask to cash out and recruiting new investors becomes more challenging.

To protect the investing public from similar scams, the Security and Exchange Commission lists several “red flags” that may indicate a particular venture may be a Ponzi scheme. Offers that ring “too good to be true” and claims of “no risk, high yield” investments that are impervious to market fluctuations are unrealistic, and clearly signify risky behavior. The investing strategies used are often vague or unclear, which schemers claim is a way to protect their business. The SEC also warns of operations that refuse to present account statements or whose payment methods are unusual or difficult to understand.

In reality, any legitimate investment is vulnerable to market fluctuations, and while there are no guarantees, working with a professional to map out a clear investment strategy that is based on your unique needs is your best bet for sustaining a sound future. When talking to prospective investment firms, the SEC has recommended a few questions to help investors avoid entering into a fraudulent partnership. For your convenience, we’ve answered a few of these questions below.

Are the members of your firm registered appropriately? 

Our advisors are licensed and registered with a number of titles and certifications, including: Certified Financial Planner®, Chartered Financial Analyst, CPA, CAP®, Certified Divorce Financial Analyst and certificate holder from the Institute for Preparing Heirs.

Is your firm appropriately registered?

We are a registered investment adviser with the SEC and we are in compliance with all current filling requirements imposed upon SEC-registered investment advisers.

How do the risks compare with the potential rewards?

As we outline in our ADV Brochure, in our Wealth Planning Agreement and on the disclosure page in our customized private wealth reports, different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any particular investment or strategy will be profitable or equal to historical performance levels. We verify each client’s investment objectives annually, and will only enter into opportunities that meet their individual tolerance for risk. That is our fiduciary responsibility.

Will I understand the investment?

Our approach to working with individuals, families and family offices is based in our belief that individuals deserve specialized attention. We proudly call ourselves a concierge wealth management firm because we are dedicated to keeping our client-to-staff ratio no higher than 5-to-1. This enables us to ensure that each client has a complete and thorough understanding of all investments in their portfolio, and we are always available to answer any question or allay any concern that our clients may have.

So, what makes your firm a safe place for my investments?

Waldron does not hold any client assets in its own accounts or on its balance sheet—this is a key to “Madoff-proofing” your investments. Our clients’ money remains their money—plain and simple. Assets are held in segregated accounts with highly qualified, independent third party custodians. Waldron Private Wealth also contracts out to an independent CPA firm to conduct an annual surprise examination of client accounts to ensure all appropriate safety measures are in place.

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About the Author

Matt Helfrich, CFP® is a partner and the president of the firm. He leads Waldron’s strategic vision, brand and value proposition, and overall culture.

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