Trust Tough After Madoff for Financial Advisers
It’s no wonder that smaller time financial advice companies are having a heck of a time proving they are not crooks to would be investors after the series of frauds that were committed against investors, most notably the Bernard Madoff scheme, and several others occurred in what seemed like rapid succession. Why did they seem so close together you may wonder? Well, because the economy combined with the massive market falls created the perfect storm for Madoff’s and other similar Ponzi schemes to fall apart pretty quickly.
Where schemes like this once were insulated by market returns that could be average to pretty good with the money they actually legitimately invested, they fell completely apart and were exposed when the market took multiple dives in multiple sectors because then they were left with only other client’s money to pay off the old clients. They essentially were depending on the new client’s investments of cash to pay off the old client’s “returns”, in a sort of pyramid like scheme. When the income dies off, the whole pyramid falls apart, and although schemes like this were run for years without any hiccups, they completely imploded in the market drop of 2008.
Because of these schemes, many investors, both rich and middle American investors, are extremely skeptical when it comes to financial advisors now, especially when it comes to independently owned, perhaps smaller firms that don’t have a brand name. Because people aren’t sure who to trust, now they are tending to go more with big names like Merill Lynch and larger banks as their financial advisors. Which is kind of funny if you think about it, after the collapse of Shearson Lehman, which was a big outfit.
I have to admit, even I am doing a little more than my due diligence when it comes to researching and making sure I’m not getting duped. I actually have a smaller accounting and investment firm that does both my taxes and my investing for the year for my small business and my personal taxes, and after this scandal broke along with multiple others after it, I made sure that I read over my paperwork and did my homework on where my money was really going.
It wasn’t that I didn’t trust my accountant, but I thought of how many people had blindly trusted theirs and then ended up losing their life savings, and I thought that I’d better really start to be more of an aware consumer. The sad part is that even if you are an educated and aware consumer, you still can’t avoid every con man out there. It does help though when you are aware of signs to look for and what you should be getting as far as documentation.
