Nearly a decade after Bernie Madoff shook the investment world with a Ponzi scheme of epic proportions, the question remains: Could it happen again?

In reflection, we always come back to this: You should always be leery of any financial advisor who is also your custodian. 

If they make your statements, then there’s a risk to you.

None of us want to even imagine that dreadful feeling that so many of Madoff’s victims felt. Yet, when we have films like HBO’s new film, “Wizard Of Lies” to remind us, some have to ask: Could a scandal like that impact me right before I retire? Could I find all of my money is gone just before the retirement party?

Could a Madoff-sized scandal happen again?

First, we can point to this very point in time where The Fiduciary Rule was supposed to go into place but isn’t. If you recall from other articles on this we’ve written, the Fiduciary Rule would have stipulated that a broker had to put his clients’ interests above his own.

The Rule has yet to go into effect, which means thousands of broker dealer firms in the United States do not have to put your interests first.

Secondly, let’s go back to our point about a financial advisor who is also the custodian of your assets – there HAS to be a separation of church and state here. What we mean by that is at Fiduciary Financial Partners, we custody zero of our clients’ assets. All of our clients’ assets are with firms like Schwab, Fidelity or TD Ameritrade. We don’t make a single statement.

Can the firm you’re dealing with say the same?

Third, we ask hundreds of people if their brokerage firm has to put their needs above their firm. 90% of those people answer, “Yes,” or “I think so.”

Yet, when we ask that very same segment of people if they believe that their broker in fact puts his customers’ needs first before his own, guess what they say?
“No” or “Certainly no.”

So let’s recap:
1) No legislation to hold firms accountable to put client interests first
2) A climate remains in which a financial firm could be custodian of assets, a very dangerous risk.
3) A general acceptance by clients that their needs are not prioritized first compared to their broker’s sales commission. 

That’s a recipe for risk if we ever saw one. Then consider that there are thousands of broker dealer firms in the United States. They don’t have to put investors’ needs first. Did Madoff have to put his investors’ needs above his own? No and he didn’t.

While we’ll say most firms will not be the next Madoff, we still have to ask: What if your broker doesn’t have to work in your best interests first and foremost?

How would you feel if you discovered that they weren’t working in that manner?

That might be a better question. Because there’s no gray area to us that under the current environment, another Madoff-type scandal will happen again.

When do your red flags come out? When you ask them whether they’re a broker and whether or not they can put your needs first above their firm’s – if you get an “umm…” or a “well…”, be concerned. It should be an easy, fast, crystal clear answer. Like it is for true fiduciaries like us at Fiduciary Financial Partners.

Fiduciary Financial Partners, LLC is a Registered Investment Adviser. This blog is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fiduciary Financial Partners, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fiduciary Financial Partners, LLC unless a client service agreement is in place.