Over the last several days, you’ve probably been hearing about Bernard Madoff and how he has allegedly stolen billions of dollars from individuals over the last several decades. It’s one of the biggest investment scams ever.
You are probably asking yourself how this could have happened. What is the real story of Bernie Madoff? How could intelligent people invest their hard-earned dollars and not know what they were getting into? How could those same people not know what was going on with their money over years and years and years?
I ask myself a different question – or maybe the same question, but from a different perspective. I wonder if an investor could have avoided the problem entirely.
I haven’t seen all the details yet, but my understanding is that Mr. Madoff reported great returns year after year regardless of what the market did. A lazy person might just consider that and make an investment decision. A lazy person might not take the time to understand investment strategies that work and thereby know that such results are not possible. A lazy person might not get a second opinion. Obviously, the heady returns that Mr. Madoff supposedly reported fed the greed which fed the laziness. It all works together.
I wonder where all these investors’ CPAs were too. This is especially troubling. Again, I don’t know all the facts, but I can guess that these clients were not getting third-party statements confirming the existence of the investments. For example, you may have a lousy broker, but at least your investment is for real. You know this because you get monthly statements from either the brokerage house or the custodian (Schwab, Fidelity, TD Ameritrade, etc.) You might even dig deeper and find out more about your mutual fund holdings.
Since the allegation is that these accounts actually never existed, my guess is that the clients and their CPAs never got statements from the third-party custodian. Again, the greed fed the sloth and that led to the result. I hope that you are not a victim of this alleged fraud or any other fraud. I know if you do your work, the odds of this happening to you in the future will be reduced significantly.
Alain Guillot says
This was a high profile scam, but there are so many small scale scams which are legal. For example, I used to be a life insurance sales person, and my supervisor always encouraged me to oversell my clients.
There is so much that goes under the radar for consumers who are not well informed.
I think that with time, and with the help of blogs like yours, consumers will become more aware of the many financial pitfalls which are in the way to financial freedom.
Thank you.
Neal Frankle, CFP ® says
Hey Alain, you are right. I had a similar situation when I worked at a bank. I felt tremendous pressure to sell high commission products – which is why I left. Thank you for your kind comments.