The $50 billion scam perpetrated by Bernard Madoff is certainly scary, but if you did not have any funds invested with his firm you can learn a valuable lesson from the tragedy. There are certain precautions you should take, or be sure your advisor takes, to be sure even your trusted financial expert is not able to scam you. This does not mean you can’t trust your advisor, just that safeguards do exist which make it easy to trust your advisor and you should be sure your advisor uses them.
Madoff received funds from clients and invested them in financial opportunities. Most likely, in the beginning, he did this honorably, but sometime in the past he decided to scam his clients. He was able to do that because his organization had one huge ethical flaw; his firm was both an investment advisory firm and a brokerage firm that held client assets. In this way he could direct the firm holding the assets to send out false statements. Clients were getting inaccurate information about their accounts.
To be sure that isn’t happening to you check your monthly statements. Where do they come from? Who sends them to you? Is the firm that sends them reputable and trustworthy? Can you contact them and ask about them? All these questions will insure that there is separation between your advisor and the firm holding your assets. You can ask your advisor for help, but you should check independently to insure you get clear and objective answers to these questions.
There are other issues you can check into as long as you are in the sleuthing mode. The following list includes some general safeguards that you should investigate: