Madoff was able to swindle some of the wealthiest and so called brightest minds in the world to invest their money with him. He provided no background information or details about his advisory business to his clients and if they asked too many questions he would tell them to leave.
There are many lessons to be learned from the money these wealthy people lost.
- Transparency- Work with a registered investment advisor (RIA), make sure you receive their Form ADV II and look up their records online. They have to be registered with individual State(s) or the SEC. Receive an updated Form ADV II. This is a disclosure document and includes information such as services provided, fee schedule, background information of the advisor(s), etc.
- Keep it Simple- Stay away from complex products be they funds, structured notes, hedge funds, funds of funds. These types of securities are not easy to understand, have layers of details, and can not be sold easily. No gimmicks.
- Ask Questions- Do your homework on the person advising you. When you meet with them treat it like an interview. Find out their background, their values, and how they do business. Work with someone who shares your ideals.
- Anyone who says they never lost clients money is lying- Mr. Madoff showed investors 12% annual returns for 15 years. Other fund managers ran tests of his investment style/decisions and could not replicate his returns.
- Passive investing will keep you out of trouble- Once again, an active management style lost clients money. Stick with a diversified mix of index funds with low expenses, low taxes, and transparent holdings.