How did Bernie Madoff fool so many people?

teller80

DIS Veteran
Joined
Apr 13, 2012
Up till now we've managed our own money - picked our own funds, decided how to diversify, etc, but now that retirement is getting closer and I'm more concerned about preserving what we have and I'm wondering if we should hire a financial planner.

We met with someone yesterday and he seemed fine, but then I started thinking about Bernie and if this guy could pull something like that off. Call me paranoid, but if Bernie could fool a whole lot of people much smarter than me, how did they all get scammed? It's not just Bernie, I've heard of other investment advisers who've done the same thing, stolen clients money.

How can I make sure a financial planner is not skimming or embezzling or whatever it's called?
 
I would be sure to work through an established, reputable investment firm. Avoid anyone who says they personally run their own financial firm and are only one or a few people. When someone you barely know offers to invest your money and offers guarantees that seem 'too good to be true'...............that is someone to avoid. NO reputable financial person will ever offer 'guaranteed' returns, especially not ones much higher then the prevailing rates. HUGE red flag when anyone does that.
 
look for a CFP, they have actually taken classes and a test. Anyone can call themselves a financial advisor. Use someone from a large firm, they will have a compliance department. Read and do your own research on the investments he/she suggests to confirm their legitimacy.
 


I'd go with one of the major investment companies. We use Vanguard and have been very pleased with our financial planner (if you invest X amount with Vanguard or any of the major houses, you get a personal advisor for a relatively small amount of money). I like that my advisor is compensated by Vanguard, NOT by me personally. There's nothing in it for him/her as an individual other than making sure I stay happy. We interviewed a few people locally, and not a one did I click with. And, therefore, we went with phone advice. I can reach my advisor any time I want, and we have check ins 4 times a year to make sure we are still on track with our goals.

I should add that we do NOT invest in individual stocks, but rather large funds managed by Vanguard. I also have a portion of our retirement accounts that I personally manage within the Vanguard fund. Those are very conservatively invested, and represent my "enough to keep me alive until I'm 90 money." So, even if it all goes to hell in the managed portion of my accounts, I'm good.
 
We're retiring in March and have managed our own accounts for almost 30 years. I don't intend to hand it off to anyone. No individual stocks as I'm not good at picking them. Over the last 18 months as the stack market has risen we've been diversifying into more cash and bonds with about 50% in stocks mutual funds. We have enough cash to ride out any market downturn. Probably too much cash.

Most large mutual fund companies offer planning tools, recommended allocations, etc. Try them.
 
LOL, extremely easy, greed. People are greedy, it's easy to motivate and influence people with their greed. Using peoples innate greed against them has been used for ever. The more people have, the more they want.


yup. no one questioned why they were still getting big returns despite the market plummeting for everyone else.

there are fascinating articles about the TRUE 'losses' to madoff's victims-taking into consideration the amounts they received at times when their investments should have been yielding NOTHING or losing principle value.
 


LOL, extremely easy, greed. People are greedy, it's easy to motivate and influence people with their greed. Using peoples innate greed against them has been used for ever. The more people have, the more they want.
Yep, this. The promise of “guaranteed” riches is almost irresistible to some. A good portion of the people he took were already pretty damn wealthy on their own and knew better. But those $$ signs got in the way of their common sense.

I have no real advice but the old adage “if it seems to be too good to be true, it probably is” is usually spot on.
 
LOL, extremely easy, greed. People are greedy, it's easy to motivate and influence people with their greed. Using peoples innate greed against them has been used for ever. The more people have, the more they want.
Couldn’t type that fast enough!! Exactly!!!
 
If you google 'investment opportunities' or other similar phrases, you can often find many who claim to guarantee HUGE fixed returns which is just nonsense. Too bad people are not well-enough informed to be suspicious of these. I also saw some TV ads recently about buying land in Belize or someplace like that.............ummmm no thanks. Any of those 'get rich quick' schemes are a recipe for disaster.
 
A big part of it was that people didn't take the time to figure out how he did what he did. They only paid attention to what they thought were the results. As in, do you know how your car works under the hood? Or the fact that it's working to get you to work and elsewhere what matters?

And when there is a breakdown, do you then take the time to learn how your car works? Or do you take it to someone else and they figure out how to fix things? The secondary problem was when experts did take a look at his numbers, they knew what he was doing couldn't possibly work. But, the Securities and Exchange Commission didn't have an oversight committee interested in taking a closer look at what he was doing until it was too late. Using the auto analogy again, it's like when Volkswagen defrauded the public with phony EPA emissions results instead of properly putting on the right safety features.
 
^^ And people like that can get away with it for awhile by getting new investors to put more money into his investments. He apparently was paying the initial investors NOT with dividends or investment gains, but simply by having the typical pyramid scheme where new money pays the early investors. Anyone offering 10-15% guaranteed returns should be viewed with suspicion no matter how slick their sales pitch. You don't need to be a CPA to know something is very wrong with such investments.
 
There were a lot of people in the financial and banking industry that suspected him of fraud, too. It went on for many years.

We have a friend who’s a financial planner. He’s been asking us for at least a year to sit down with him and his firm partner and go over our accounts. We’ve always managed our own investments and are doing quite well. I’m at 10.7% investment return over a period of 20 years, thanks in part to the current economy. I think it was 7% prior to the last administration change.

I don’t blame you for being worried. I did some reading on Madoff after our friend asked us to meet with him because I wanted to understand how it happened. IMHO, it’s really wrong to say people were fooled because of greed. Maybe some of them, but average hard working people lost their money as did charities and organizations that fund police and fire pensions. The victims weren’t all rich billionaires. It wasn’t their fault. Madoff was a conman.
 
I would have no problem discussing my finances with a professional, but there is NO WAY I would hand over control to anyone. I would take suggestions for investments and research them myself. I would also stick to the mainstream investments - mutual funds, ETF's, etc, we even have a couple of fixed annuities that we will begin to draw on in a few years. But I make sure to understand what I am investing in. People are too trusting and gullible (yes and greedy too).
 
Same way many more have. And several of them are perfectly legal. People are just not informed.
The Pink products scam. How much of that product with the pink ribbon goes to breast cancer research? Turns out possibly none and usually very little.
The MLM scam. Barely legal but it pretty much operates the same as a pyramid scheme. It's just they have a product.
 
Stick with a firm large enough to have a serious compliance department. I'm in the industry and the compliance department can be a huge pain in the @ss but they're there to protect the client. CFP and other designations just means you took an exam. Nobody ever claimed Madoff wasn't knowledgeable. The problem was that he wasn't honest.
 
There were folks in my area taken in by Madoff. Frankly, they didn’t pay attention to the warning signs. If the reputable, monitored financial investment institutions are reporting a 10% return over X number of years and some guy comes along promising 15%...well if it’s too good to be true....

That’s where the greed takes over. Ignore the warning signs because of the big returns. And I’m talking about professional well educated people who shouldn’t be so easy to take advantage of.
 

GET A DISNEY VACATION QUOTE

Dreams Unlimited Travel is committed to providing you with the very best vacation planning experience possible. Our Vacation Planners are experts and will share their honest advice to help you have a magical vacation.

Let us help you with your next Disney Vacation!





Top