BachrachBlog

Of all the events in 2008 that can affect the relationship between a client and their advisor, the Madoff scandal was a biggie. At the end of the day, your clients don’t really believe that you could have or should have known when the markets were going down, when to get them out, time the bottom, and get them back in. Even if they were looking for a scapegoat to vent their frustration for their losses and fired their advisor, deep down most people know that nobody can predict the markets. Stealing from them, on the other hand, is another matter entirely. This is something you DO have control over and placing their money with a money manager who won’t steal it is your fiduciary responsibility.

So, how do you answer the question, “How do I know you or your money managers aren’t stealing my money?”

This was well summed up by James Hedges IV of LJH Global Investments who said, “Letting Madoff manage your money wouldn’t pass an institutional-quality due diligence because when you get to page two of your 30-page due diligence questionnaire, you’ve already tripped eight alarms and said I’m out of here.”

Christine Williamson wrote in the Pensions & Investments newspaper, “Most major U.S. institutionally oriented hedge funds of funds didn’t have anything to say – they had passed on Mr. Madoff’s funds because he wouldn’t provide enough transparency on the investment process.”

One thing you can tell your clients to assuage their fears about you and the money managers you place your clients’ assets with is to explain the thorough and effective due diligence process you use to determine where you place their money. If you didn’t have this level of a due diligence process a few months ago, you better have one now. It sounds like this, “One reason you can be secure in the knowledge that your money is not currently, and will never be, in the hands of someone who can steal it is because we have a 15-step process for screening money managers. Madoff would not have gotten past step four. Would you like me to show you every step in the process and how it works?”

To explore this subject further go to http://www.baivbfp.com/video/webinar_madoff/index.php to watch the recording of my recent webinar: Building Trust in the Age of Madoff; 10 ways to answser the question, “How do I know you or your money managers aren’t stealing from me?”