My reading material this morning included an article from Business Insider about Bernie Madoff, on the fifth anniversary of his 150 year prison sentence for running a massive Ponzi scheme.
It was an interesting read and got me thinking about the lessons investors can learn from Bernie Madoff.
There were several elements of his fraud which investors should understand in order to protect themselves from fraudsters in the future:
“…Madoff convinced thousands of investors to hand over their savings, falsely promising consistent profits in return.”
Fraudulent investment schemes often come with the lure of consistent returns.
We are immediately suspicious of any scheme which comes with ‘straight line’ investment past performance.
Real investments don’t tend to work like this; they more typically offer volatile returns with a mix of positive and negative returns over different time frames.
The “investing strategies” used are vague and/or secretive, which schemers claim is to protect their business.
Understand the investment or don’t invest.
We were having a chat with another adviser earlier this week about a certain notorious failed investment scheme and how none of us could fathom how it worked, despite an hour of detailed explanations.
If the person selling the investment will not disclose how the money is being invested, or you cannot get your head round the mechanics of the investment scheme, walk away.
Madoff was a well-versed and active member of the financial industry.
Fraudsters often hide behind a veil of respectability.
The most successful investment shysters attach themselves to professional organisations or trade bodies, with the aim of giving more confidence to their victims.
Unfortunately, being authorised by the Financial Conduct Authority and a member of the Personal Finance Society or Institute of Financial Planning is no guarantee that an adviser is on the level.
These are hygiene factors for seeking advice in the UK, but recognise that some bad eggs will always slip through the net. Combine professional standards with professional behaviour, and look past the veneer of qualifications and associations.
As Bernie Madoff settles down for the remaining 145 years of his prison sentence at Butner Federal Correctional Institution, have a read of the Business Insider article outlining his crimes and learn from his fraud to protect your own assets in the future.
