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Consumers Can Protect Themselves from Fraudulent Advisors, says Ric Edelman

For Immediate Release
December 22, 2008

Media Contact:
Mark Bagley
703-227-0541
mbagley@RicEdelman.com

FAIRFAX, Va., Dec. 22 -- Although the confidence of many investors has been shattered by Bernard Madoff’s Ponzi scheme that reportedly lost $50 billion, renowned financial advisor Ric Edelman says there are seven warning signs to help consumers avoid losing their money to a dishonest investment advisor or money manager.

Edelman — a member of the Financial Advisor Hall of Fame and whose company, Edelman Financial Services, is one of the nation’s largest independent financial management firms — says Madoff’s victims ignored these warning signs. “It doesn’t take an expert to recognize fraud,” said Edelman. “Basic common sense is enough to protect you.”

Edelman offered the following checklist to help investors who are considering or working with a financial advisor:

1. Beware any advisor who prominently touts his ethics, honesty and trustworthiness. “Honesty should be a given,” said Edelman. “Anyone who goes to great lengths to aggressively promote his honesty is raising a red flag.” Madoff’s web site stated, “Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark.”
2. Never make investment checks payable to the advisor or the advisor’s firm. The only check you should make payable to an advisor is for his fee. Checks for your investments, however, should be made payable to the custodian handling your account, such as Schwab or TD Ameritrade. By not depositing your money with your advisor, he will not have access to or control of your assets.
3. Beware any advisor who issues his own statements. The national or regional custodian or brokerage firm that maintains your account will issue monthly statements to you. Madoff apparently issued his own statements, which creates a huge conflict of interest.
4. Make sure your advisor uses a known, reputable auditor. An independent auditor should regularly examine the advisor’s books and records to ensure that clients’ money is being handled properly. “Madoff hired a small auditing firm that reportedly operated out of a single 13x18 square-foot office, even though he was handling billions of dollars in assets,” said Edelman.
5. Beware any advisor who offers unusually high or steady rates of return. Every investor dreams of earning consistently high returns — which are too good to be true. “Madoff’s investors received a monthly return of 1% for years. He even reported a 5.6% profit for the first 11 months of 2008 — despite the fact that the stock market had lost more than 40%. Claims of consistently good returns should be viewed with great suspicion,” said Edelman.
6. Don’t use an advisor who touts testimonials. Past performance does not guarantee future results, which is why the Securities and Exchange Commission prohibits advisors from using testimonials in their marketing. But Madoff built his entire business by word of mouth, currying favor on the social circuit at high-end country clubs.
7. Never invest in anything you don’t understand. If you don’t understand an investment or strategy, don’t invest in it. “Madoff refused to explain how he produced investment returns and clients joked that he put the money in a ‘black box,’” said Edelman. “They’re not laughing any more.”

Watching for these red flags is vital, according to Edelman, because investors cannot just assume that they will be protected by the regulators. “The SEC did not know that Madoff was engaging in fraud, despite the fact that the agency audited him numerous times.

“News of fraud is discouraging, but fraud has always been with us,” said Edelman. “Educate yourself and stay alert, so you can succeed with your investments.”

Edelman is a long-time advocate of education and regulatory safeguards for investors. His six books include his current best-seller, The Lies About Money. He hosts The Ric Edelman Show, broadcast nationwide each weekend via the ABC Radio Networks.

Ric Edelman is an Investment Advisor Representative and offers advisory services through Edelman Financial Advisors LLC and Edelman Financial Services LLC, SEC registered investment advisers. Ric is also a Registered Representative of and offers securities for Edelman Financial Services LLC through SMH Capital Inc., an independent broker/dealer, member FINRA/SIPC.