Austin, TX (PressExposure) July 10, 2009 -- The Bernard Madoff story is an investorâs worst nightmare: losing oneâs life savings and being plunged into poverty because of the lies of a trusted financial advisor.
The story of Bernard Madoff, disgraced financier, has struck fear in the hearts of many investors. Madoff was recently sentenced to 150 years in prison for defrauding clients of billions of dollars.
However, there are steps that investors can take to avoid getting caught in a similar scam, according to financial Todd Kernaghan, who wrote about Madoff recently on his blog at [http://www.toddkernaghan.com].
âUnfortunately, there probably will be another Madoff, and nothing is foolproof,â Kernaghan writes. âThere are, however, some steps you can take as precautions.â
One of the first question that investors should ask is whether the advisor, advisorâs firm or an affiliate of either also acts as custodian of the funds.
And if the answer to that question is yes, then investors should think twice before trusting their money to that advisor, Kernaghan notes.
âMost frauds are perpetrated when the individual has custody of the funds directly or through an affiliate,â Kernaghan says.
Thatâs why Kernaghan recommends that investors get an independent custodian for the funds. A company with another name is not sufficient; an independent custodian should not be controlled by the advisorâs firm, either directly or indirectly. Investors should demand a very detailed explanation if an advisor refuses to use an independent custodian.
Second, investors need to know whether the advisor, or the advisorâs firm, or an affiliate, prepares the statements of account activity. If the answer is yes that is not automatically a red flag. Many advisors suppress the statements from the custodian. If an investor is told that this is the case, ask to receive the custodianâs statements as well. If the investors are not allowed to receive them, ask why that is.
Third, an investor should find out if the advisor, advisorâs firm or an affiliate of the advisor has the ability to withdraw funds for any reason other than the advisory and investment fee they are entitled to. If they are allowed to, the investor should find out under what circumstances they are allowed to withdraw funds and, most importantly, whether those circumstances require your consent. Aside from the ability to withdraw funds for mutually agreed upon advisory and investment fees for the account, all other withdrawals should require formal consent. Investors should read their advisory agreements and make sure that is the case.
For more tips on how to avoid falling victim to the next Madoff, or to find out more about Kernaghan and his investment philosophy, visit [http://www.toddkernaghan.com].