Madoff’s Money Madness & Mistrust

I have not lost money due to the Maddoff scandal and would guess that neither have you. This was not because we have been savvy investors. No, it’s because we did not have enough money for Mr. Madoff to invite us into his exclusive club. Lucky us.

I have many clients who are considering retirement or who have retired. When working with them in seminars or individually I stress the importance of managing their money. My strong advice is to find a financial advisor they can trust and work with him or her to provide them with the information they need to make sound decisions. A financial advisor is as important in retirement as a good doctor and lawyer. Mr. Madoff’s crimes have now made my work to have my clients use a financial advisor all the more difficult.

Do you understand?

The first rule for building trust with a financial advisor is that the advisor should be able to clearly communicate his or her ideas to you. Being lost in a professions’ jargon should be a red flag to you that the advisor does not know how to work with you, or worse that they are keeping you confused and uncertain on purpose.

The Emperor Has No Clothes

It is remarkable to read the growing list of wealthy people who fell in behind the wealthy person ahead of them in line to throw their money into what is now known to be Mr. Madoff’s money pit. I read that a number of truly smart investors had professionals look into Mr. Madoff’s money management and they were so concerned that they reported him to the authorities; to no avail. Everyone believed everyone else and the emperor walked naked on Wall Street to the cheers of his supporters.

Who Can You Trust?

Begin by trusting yourself. If something does not feel right, explore it. Also, have two sets of independent eyes looking at your statements. Your first set of eyes is yours, you should learn how to read your investment reports and then read them. The second set of eyes can be independent financial advisor, accountant, estate lawyer, banker or another trusted advisor who understands investing and is motivated by your best interests. (If you do not have enough money to use a financial advisor to invest then you should for investments that are guaranteed or are very safe.)

People feel good about their professional investor when both performance and trust is high. Neither good performance nor trust alone can produce comfort for you. You really need both.

The following twelve questions can help you to understand your trust level with your financial advisor. It is one of 15 tools, charts and ideas offered in Chapter Five, The Financial Domain, of Beyond Work: How Accomplished People Retire Successfully (Wiley, 2008) that can help you choose and work with a financial advisor.

Bill Roiter’s[i] Twelve Questions to Assess an Advisor’s Trustworthiness

Here are 12 simple questions you can ask yourself to determine how much you trust your advisor or how much you may trust an advisor you are considering using. Read each statement and mark how true it is for you.

Trust Component:

My advisor is

To what extent is each statement true for you?

Not True

Somewhat True

True

Very true

1. Trustworthy

1. I can trust my advisor.

1

2

3

4

2. Attentive

2. My advisor listens to what I have to say.

1

2

3

4

3. Understanding

3. My advisor understands what I tell him or her.

1

2

3

4

4. A clear communicator

4. I understand what my advisor tells me.

1

2

3

4

5. Thoughtful

5. My advisor knows my situation and does not think of me as a general ‘type of client’.

1

2

3

4

6. Interested in my well-being

6. I believe that my advisor cares about me (is not just focused on the fees I pay).

1

2

3

4

7. Open to my ideas

7. My advisor welcomes my questions and discusses them with me

1

2

3

4

8. Competent

8. I feel that my advisor is skilled in his or her specialty.

1

2

3

4

9. Reliable

9. My advisor follows through on the plans we create.

1

2

3

4

10. Honest

10. My Advisor quickly takes responsibility for mistakes or problems.

1

2

3

4

11. Available

11. My advisor is available when I need him or her.

1

2

3

4

12. Compatible with me

12. I like my advisor as a person.

1

2

3

4

Sub-total for each column

Total of the four columns sub-totals

Range of scores = 12 to 48

12 = No trust

13 to 24 = Some trust

25 to 36 = Trust

37 or above = Strong trust

How did you rate your advisor? The higher the score the better. If your score falls between 20 and 36 you can look at the questions with the low scores and talk with your advisor about your concerns. You can use this Advisor’s Trustworthiness tool for all your advisors, not just your financial advisors.

Is Your Trust Warranted?

While trust is a major component of your work with a financial advisor you should have the advisor’s performance and credentials reviewed by a knowledgeable person you already trust. Remember that trust is not faith: always trust with your eyes open.

Do you trust your financial advisor? Why or why not?

[i] This copyrighted material is an excerpt taken by the author, Bill Roiter, from his book Beyond Work: How Accomplished People Retire Successfully (Wiley, 2008)


Advertisements

Leave a comment

Filed under Financial, In the News, Personal, Physical, Retirement, Retirement Tips, Social, Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s