How big is the 'Madoff risk' -- All of your money at one advisor?

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vtBob
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Joined: Tue Mar 10, 2015 9:31 pm

How big is the 'Madoff risk' -- All of your money at one advisor?

Post by vtBob » Mon Feb 19, 2018 11:13 pm

tl;dr If my net worth is under a million dollars and I have a financial advisor with 90% of my investible assets (non emergency fund), what is my risk of getting hoodwinked by a Madoff :confused :confused

Hi all,

I believe in the bogelhead philosophy of low cost index fund investing but for personal reasons, I believe in having an investment advisor to help me manage the majority of my investable money in order to encourage me to really follow my IPS, at least at this point in time.

So I chose local firm who seems to fit my philosophy and agrees with the philosophies of this forum in terms of low cost fees. (I don't mind sharing via PM but I'd hate to have their only mention in this forum be in a thread with this title... that's not fair :mrgreen: )

After discussing my decision with my father he recommend that at some point in the future I might want to consider the Madoff risk and diversity my assets among a couple of money managers. I hope I am lucky enough to have that much money to worry about!

That being said, this firm is holding the assets at schwab, has regulatory filings in place, and I have all my financial data sucked in to two different apps (quicken and mint) and schwab's account summary aggregation tool.
I'd say on average I glance at schwab once a week, quicken once or twice a quarter and mint twice a year.
If the market is making noise I tend to check schwab more frequently (cue the advisor dude, although really I have been good, I just don't want the pressure)

Please note I'm not saying that the above is good advice, but, uh. It's what I got for now... :sharebeer

That being said. How could shares or cash go missing form a schwab Roth/Ira or brokerage account without me being able to know about it relatively rapidly. What is my risk and exposure? How did this happen to other intelligent people?

thanks for reading and any replies!

3funder
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Joined: Sun Oct 15, 2017 9:35 pm

Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by 3funder » Mon Feb 19, 2018 11:49 pm

vtBob wrote:
Mon Feb 19, 2018 11:13 pm
tl;dr If my net worth is under a million dollars and I have a financial advisor with 90% of my investible assets (non emergency fund), what is my risk of getting hoodwinked by a Madoff :confused :confused

Hi all,

I believe in the bogelhead philosophy of low cost index fund investing but for personal reasons, I believe in having an investment advisor to help me manage the majority of my investable money in order to encourage me to really follow my IPS, at least at this point in time.

So I chose local firm who seems to fit my philosophy and agrees with the philosophies of this forum in terms of low cost fees. (I don't mind sharing via PM but I'd hate to have their only mention in this forum be in a thread with this title... that's not fair :mrgreen: )

After discussing my decision with my father he recommend that at some point in the future I might want to consider the Madoff risk and diversity my assets among a couple of money managers. I hope I am lucky enough to have that much money to worry about!

That being said, this firm is holding the assets at schwab, has regulatory filings in place, and I have all my financial data sucked in to two different apps (quicken and mint) and schwab's account summary aggregation tool.
I'd say on average I glance at schwab once a week, quicken once or twice a quarter and mint twice a year.
If the market is making noise I tend to check schwab more frequently (cue the advisor dude, although really I have been good, I just don't want the pressure)

Please note I'm not saying that the above is good advice, but, uh. It's what I got for now... :sharebeer

That being said. How could shares or cash go missing form a schwab Roth/Ira or brokerage account without me being able to know about it relatively rapidly. What is my risk and exposure? How did this happen to other intelligent people?

thanks for reading and any replies!
I don't think it's that big of a deal (as long as you know exactly how he or she is investing your money).

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Dale_G
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by Dale_G » Mon Feb 19, 2018 11:55 pm

I see no worry as long as you can verify the amounts in your account at Schwab on the Schwab website.

Dale
Volatility is my friend

itstoomuch
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Location: midValley OR

Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by itstoomuch » Tue Feb 20, 2018 12:04 am

Zero, Madoff risk.
No, our retirement funds are distributed over different bucket/assets/streams of Income.

We have nothing that FA can manage. He does see the numbers.
He has sold us annuities from 2 companies, LTCi from another, and a small managed account held at TDAmeritrade. He does not have discretionary privileges nor was any privileges offered at initial purchase {IIRC}. We meet twice yearly to get a printout of the managed account and Retirement Analysis.

We also have rentals and Discretionary Trading account that are outside his expertise and view. I give him the numbers that he plugs into his company's planning program.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

vtBob
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Joined: Tue Mar 10, 2015 9:31 pm

Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by vtBob » Tue Feb 20, 2018 1:41 am

3funder wrote:
Mon Feb 19, 2018 11:49 pm
vtBob wrote:
Mon Feb 19, 2018 11:13 pm
tl;dr If my net worth is under a million dollars and I have a financial advisor with 90% of my investible assets (non emergency fund), what is my risk of getting hoodwinked by a Madoff :confused :confused

Hi all,

I believe in the bogelhead philosophy of low cost index fund investing but for personal reasons, I believe in having an investment advisor to help me manage the majority of my investable money in order to encourage me to really follow my IPS, at least at this point in time.

So I chose local firm who seems to fit my philosophy and agrees with the philosophies of this forum in terms of low cost fees. (I don't mind sharing via PM but I'd hate to have their only mention in this forum be in a thread with this title... that's not fair :mrgreen: )

After discussing my decision with my father he recommend that at some point in the future I might want to consider the Madoff risk and diversity my assets among a couple of money managers. I hope I am lucky enough to have that much money to worry about!

That being said, this firm is holding the assets at schwab, has regulatory filings in place, and I have all my financial data sucked in to two different apps (quicken and mint) and schwab's account summary aggregation tool.
I'd say on average I glance at schwab once a week, quicken once or twice a quarter and mint twice a year.
If the market is making noise I tend to check schwab more frequently (cue the advisor dude, although really I have been good, I just don't want the pressure)

Please note I'm not saying that the above is good advice, but, uh. It's what I got for now... :sharebeer

That being said. How could shares or cash go missing form a schwab Roth/Ira or brokerage account without me being able to know about it relatively rapidly. What is my risk and exposure? How did this happen to other intelligent people?

thanks for reading and any replies!
I don't think it's that big of a deal (as long as you know exactly how he or she is investing your money).
Yes exactly and he only gets money from clients fees period. Per regulatory filings no money can come from other sources

dbr
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by dbr » Tue Feb 20, 2018 9:59 am

What do you mean "with an advisor." My investments are in the custody of the brokers with whom I have accounts. The names are like Fidelity, Schwab, etc. There isn't any advisor. Who has custody of your investments? Who buys and sells for you? It shouldn't be anyone but you.

I think what you mean is that you have your investments at Schwab, not "at" or "with" an advisor, but you have an advisor who gives you advice. You should be sure he does not have any discretion to trade for you.

LarryAllen
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by LarryAllen » Tue Feb 20, 2018 10:06 am

vtBob wrote:
Tue Feb 20, 2018 1:41 am
3funder wrote:
Mon Feb 19, 2018 11:49 pm
vtBob wrote:
Mon Feb 19, 2018 11:13 pm
tl;dr If my net worth is under a million dollars and I have a financial advisor with 90% of my investible assets (non emergency fund), what is my risk of getting hoodwinked by a Madoff :confused :confused

Hi all,

I believe in the bogelhead philosophy of low cost index fund investing but for personal reasons, I believe in having an investment advisor to help me manage the majority of my investable money in order to encourage me to really follow my IPS, at least at this point in time.

So I chose local firm who seems to fit my philosophy and agrees with the philosophies of this forum in terms of low cost fees. (I don't mind sharing via PM but I'd hate to have their only mention in this forum be in a thread with this title... that's not fair :mrgreen: )

After discussing my decision with my father he recommend that at some point in the future I might want to consider the Madoff risk and diversity my assets among a couple of money managers. I hope I am lucky enough to have that much money to worry about!

That being said, this firm is holding the assets at schwab, has regulatory filings in place, and I have all my financial data sucked in to two different apps (quicken and mint) and schwab's account summary aggregation tool.
I'd say on average I glance at schwab once a week, quicken once or twice a quarter and mint twice a year.
If the market is making noise I tend to check schwab more frequently (cue the advisor dude, although really I have been good, I just don't want the pressure)

Please note I'm not saying that the above is good advice, but, uh. It's what I got for now... :sharebeer

That being said. How could shares or cash go missing form a schwab Roth/Ira or brokerage account without me being able to know about it relatively rapidly. What is my risk and exposure? How did this happen to other intelligent people?

thanks for reading and any replies!
I don't think it's that big of a deal (as long as you know exactly how he or she is investing your money).
Yes exactly and he only gets money from clients fees period. Per regulatory filings no money can come from other sources
I used to think it was this simple but it's really not always. If you use an investment advisor who then houses your money at TD Institutional, for example, there is no actual cap to what they can take in fees. Yes, they have an agreement with you but that agreement is between you and the advisor not TD. Yes, this is close to 0% chance of happening as the advisor would be ruined (by lawsuit and/or FINRA) but the question started by asking about Madoff. So if you use an advisor that is allowed to take money from your account to pay his fees you might want to re-think that if you are extremely risk averse.

vtBob
Posts: 64
Joined: Tue Mar 10, 2015 9:31 pm

Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by vtBob » Tue Feb 20, 2018 1:00 pm

LarryAllen wrote:
Tue Feb 20, 2018 10:06 am
vtBob wrote:
Tue Feb 20, 2018 1:41 am
3funder wrote:
Mon Feb 19, 2018 11:49 pm
vtBob wrote:
Mon Feb 19, 2018 11:13 pm
tl;dr If my net worth is under a million dollars and I have a financial advisor with 90% of my investible assets (non emergency fund), what is my risk of getting hoodwinked by a Madoff :confused :confused

Hi all,

I believe in the bogelhead philosophy of low cost index fund investing but for personal reasons, I believe in having an investment advisor to help me manage the majority of my investable money in order to encourage me to really follow my IPS, at least at this point in time.

So I chose local firm who seems to fit my philosophy and agrees with the philosophies of this forum in terms of low cost fees. (I don't mind sharing via PM but I'd hate to have their only mention in this forum be in a thread with this title... that's not fair :mrgreen: )

After discussing my decision with my father he recommend that at some point in the future I might want to consider the Madoff risk and diversity my assets among a couple of money managers. I hope I am lucky enough to have that much money to worry about!

That being said, this firm is holding the assets at schwab, has regulatory filings in place, and I have all my financial data sucked in to two different apps (quicken and mint) and schwab's account summary aggregation tool.
I'd say on average I glance at schwab once a week, quicken once or twice a quarter and mint twice a year.
If the market is making noise I tend to check schwab more frequently (cue the advisor dude, although really I have been good, I just don't want the pressure)

Please note I'm not saying that the above is good advice, but, uh. It's what I got for now... :sharebeer

That being said. How could shares or cash go missing form a schwab Roth/Ira or brokerage account without me being able to know about it relatively rapidly. What is my risk and exposure? How did this happen to other intelligent people?

thanks for reading and any replies!
I don't think it's that big of a deal (as long as you know exactly how he or she is investing your money).
Yes exactly and he only gets money from clients fees period. Per regulatory filings no money can come from other sources
I used to think it was this simple but it's really not always. If you use an investment advisor who then houses your money at TD Institutional, for example, there is no actual cap to what they can take in fees. Yes, they have an agreement with you but that agreement is between you and the advisor not TD. Yes, this is close to 0% chance of happening as the advisor would be ruined (by lawsuit and/or FINRA) but the question started by asking about Madoff. So if you use an advisor that is allowed to take money from your account to pay his fees you might want to re-think that if you are extremely risk averse.
Thanks Larry,

Good question. I am not extremely risk averse, and to answer another question about the relationship structure. Yes the funds are held at schwab, but yes it is an advisor who has discretionary trading ability on my main roth account and my main taxable brokerage account. He does not have any trading privs or access to my formal emergency fund account (6 months to a year but realistically I am very employable barring some sort of disability) and some other accounts that hold a bit of cash for a future renovation (10-15% of NW)

For more info here's the form adv part 2a for the firm (again please the name out of the thread given the title)
https://www.adviserinfo.sec.gov/IAPD/Co ... _ID=452296

in regards to fees
"E. Outside Compensation For the Sale of Securities to Clients
Neither ****** nor its supervised persons accept any compensation for the sale of
investment products, including asset-based sales charges or service fees from the sale of
mutual funds"

so yea, i'm not terribly low risk but i'm looking for the real risk here of waking up one day and find my $$ are missing and it seems unlikely that at the very least I wouldn't know immediately. As far as remedies I know that's up to me, but as least I won't think that money is there when it really isn't.

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DaftInvestor
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by DaftInvestor » Tue Feb 20, 2018 1:01 pm

If you follow the Boglehead philosophy and keep things simple the real question is why do you need the independent firm at all managing your money? Why not work directly with Schwab and, if you need to, pay a fixed fee to the firm for their advise?

Its hard to know what your exposure is without knowing the firm and contracts you have arranged with them.

JBTX
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by JBTX » Tue Feb 20, 2018 1:09 pm

Google “can financial advisors steal your money.”

If you can see statements and online accounts, and the accounts are in your name, that lessens the likelihood of malfeasance.

vtBob
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by vtBob » Tue Feb 20, 2018 1:11 pm

DaftInvestor wrote:
Tue Feb 20, 2018 1:01 pm
If you follow the Boglehead philosophy and keep things simple the real question is why do you need the independent firm at all managing your money? Why not work directly with Schwab and, if you need to, pay a fixed fee to the firm for their advise?

Its hard to know what your exposure is without knowing the firm and contracts you have arranged with them.
2 main reasons.

1. i'm a compulsive gambler, last bet 5/12/08 and having additional accountability is a good thing for me

2. I genuinely believe that the biggest risk to taking the market return is one's own emotions, again here, the more roadblocks to making decisions you can put up, the better.

as far as the details, basically as stated above, they can trade on my behalf in 2 of my accounts and pull an annual fee. I would prefer the lattar was a push instead of a pull but the firm is still small ish and frankly i expect that to change by the time I have enough where I really care. And if it hasn't at that point I won't feel bad about asking them to change it :)

vtBob
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by vtBob » Tue Feb 20, 2018 1:12 pm

JBTX wrote:
Tue Feb 20, 2018 1:09 pm
Google “can financial advisors steal your money.”

If you can see statements and online accounts, and the accounts are in your name, that lessens the likelihood of malfeasance.
thank you.

yes i can see the staetements / accounts and yes they are in my name. thanks for the response.

JBTX
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by JBTX » Tue Feb 20, 2018 1:18 pm

vtBob wrote:
Tue Feb 20, 2018 1:12 pm
JBTX wrote:
Tue Feb 20, 2018 1:09 pm
Google “can financial advisors steal your money.”

If you can see statements and online accounts, and the accounts are in your name, that lessens the likelihood of malfeasance.
thank you.

yes i can see the staetements / accounts and yes they are in my name. thanks for the response.
Does your FA have the ability to move funds in and out at will? Does he have the ability to withdraw funds entirely and put deposit them wherever he wants, such as FA inc women and booze fund? If he does there is a theoretical risk he could drain your accounts and flee to Mexico. Is that something to worry about? I honestly don’t know.

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prudent
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by prudent » Tue Feb 20, 2018 1:21 pm

A key item of protection is that you can verify your holdings and transactions independent of your advisor. (In your case, you can log in to Schwab and see what is there and what transactions have occurred). Your statements come from Schwab. Your advisor is not holding the assets.

In Madoff's scheme, his own firm was preparing statements (fake, obviously). Clients had to go through Madoff to get any information.

GibsonL6s
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by GibsonL6s » Tue Feb 20, 2018 1:30 pm

Do you have a written fee agreement with the advisor and does it require fidelity bonds/crime coverage as well as Professional Liability insurance. It should also have your general risk tolerance and approved strategy in writing.

I would also see if you can put a block on the account so no one but you can withdraw but they can trade. I would assume this is common and doable.

You should request copies of the insurance certificates. If they don't have them or hesitate, I would view this as a sign.

vtBob
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by vtBob » Tue Feb 20, 2018 1:36 pm

prudent wrote:
Tue Feb 20, 2018 1:21 pm
A key item of protection is that you can verify your holdings and transactions independent of your advisor. (In your case, you can log in to Schwab and see what is there and what transactions have occurred). Your statements come from Schwab. Your advisor is not holding the assets.

In Madoff's scheme, his own firm was preparing statements (fake, obviously). Clients had to go through Madoff to get any information.
Ah. thank you , this was a key component I was unfamiliar with and answers the question: how did this happen to other intelligent people.

thank you.

vtBob
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by vtBob » Tue Feb 20, 2018 1:39 pm

GibsonL6s wrote:
Tue Feb 20, 2018 1:30 pm
Do you have a written fee agreement with the advisor and does it require fidelity bonds/crime coverage as well as Professional Liability insurance. It should also have your general risk tolerance and approved strategy in writing.

I would also see if you can put a block on the account so no one but you can withdraw but they can trade. I would assume this is common and doable.

You should request copies of the insurance certificates. If they don't have them or hesitate, I would view this as a sign.
written agreement = yes
fees in agreement = yes
risk tolerance in agreement = yes
specific list of funds the advisor will use (all vanguard funds) listed in agreement = yes
insurance coverage = i don't remember will have to look, good idea thanks.
withrdrawl block = no idea but i'll look into it.

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Toons
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by Toons » Tue Feb 20, 2018 1:42 pm

I guess it depends on the Advisor as was well learned with those invested with Madoff.
No concern whatsoever with Vanguard
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

alex_686
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by alex_686 » Tue Feb 20, 2018 1:50 pm

vtBob wrote:
Tue Feb 20, 2018 1:36 pm
Ah. thank you , this was a key component I was unfamiliar with and answers the question: how did this happen to other intelligent people.
Greed. It was a advisory firm, not a fiduciary firm. It was selling to accredited investors. The advisory firm was not SPIC insured. So little oversight from regulators. Most of the money was placed by intermediators, such as hedge firms. They should have been doing their due diligence.

Also the rumors were that Madoff was making his higher returns via insider trading. If true you would not want to look too hard at exactly what he was doing. So more greed.

CurlyDave
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by CurlyDave » Tue Feb 20, 2018 8:46 pm

Dale_G wrote:
Mon Feb 19, 2018 11:55 pm
I see no worry as long as you can verify the amounts in your account at Schwab on the Schwab website.
+1

If you want a little insurance, every day or once a week save a .pdf of your account positions on your computer. If there has been any hanky-panky going on, this will pinpoint the time it happened.

Alan S.
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by Alan S. » Tue Feb 20, 2018 9:40 pm

Is the advisor in the Schwab Advisor Network? Did Schwab refer you to the advisor?
Does your Schwab statement show the name of the advisor or any names other than yours or Schwab?

https://www.schwab.com/public/schwab/in ... or_network

Minty
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Re: How big is the 'Madoff risk' -- All of your money at one advisor?

Post by Minty » Wed Feb 21, 2018 1:10 am

vtBob wrote:
Mon Feb 19, 2018 11:13 pm
tl;dr If my net worth is under a million dollars and I have a financial advisor with 90% of my investible assets (non emergency fund), what is my risk of getting hoodwinked by a Madoff :confused :confused
Now, I am a hippie. But once upon a time, I was a straight, conventional lawyer working for a very large law firm. One of the types of cases I did was representing big brokerages when individual advisors allegedly cheated clients out of their life savings. We always won.

I knew some mutual fund managers who never did anything wrong, but (of course) a la Walter Mitty, knew how to cheat the fund notwithstanding the separation of managing and custodial roles. On a rational basis, the risk may be very low if you take precautions. Nevertheless, for myself, I would never, ever, deal with an advisor, unless they guaranteed the market return plus, and that promise was approved in the minutes of the board of the parent.
Core Four with nominal bonds and TIPS.

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