Bernie Madoff, we define him as a con artist and most people would. Con artists can destroy investors in two different ways. They can out right steal your money or they can speculate and gamble with it. And now once you identified Bernie Madoff or someone like him, then the idea is that you run from that person. You don’t walk, you run from that person.
There’s three steps to avoid the next Madoff and they all start with the word verify. In a presentation that I worked on, we call it ‘Verify, Verify, Verify’, and the first step is that you verify the financials of the company that you’re working with. Audited, audited financials by a third party; not some fake document they created. Remember, Bernie Madoff created and disseminated to his clients a lot of fake documents.
The second is that you verify that you have a third party custodian. See, Bernie Madoff actually held custody of assets, that made it easier for him to steal client assets. If you don’t have custody of assets, if there’s actually a third party, and you have verification through the custodian’s statements, then you know that you’ve taken a step to verify your manager doesn’t have access to your money to steal it. The third one is that you verify returns and this one is really important.
If I could give one piece of advice to an adviser out there, if something smells fishy or they think they may have run across someone like this, one is first they distance themselves from that person. And most of the time they are going to have to distance their clients from that person. And once they distance themselves from that person, then they can start to look into that person and maybe might have to call some regulators or something like that. And maybe they’ll have to look into the situation.
At Matson Money, we make every effort to avoid he fraudsters and con artists. In addition, we generally avoid these types of situations where fraudster flourish because we have a very specific investment strategy based on very specific academic tenants and we adhere to those. We have a set of core beliefs that our company was founded upon and if anything doesn’t fit within the parameters of our core beliefs or within the parameters of our academic investment strategy, it doesn’t work for us and it doesn’t work for our clients.
Well I think advisers want to provide something that’s great for their clients and sometimes they think that they need to find the next hot manager. Unfortunately, when you find the next hot manager, sometimes you neglect to do the due diligence that you need to do, in order to make sure it’s the right investment for your clients.