Both the Stanford and Madoff scams have something in common. These advisors used simple techniques to separate investors from their money by promising high returns and no risk (greed). If something is too good to be true - Well It Is!!!!!!!
So here are the warning signs:
If you receive statements from only your Advisor's firm you could be in trouble. An Advisor should custodian your funds at a separate and independent company. I custodian my client's portfolios at Charles Schwab & Co. The client receives a separate statement directly from Schwab verifying their holdings. Madoff would never have been able to steal his client's money if custody of the funds had been held at another firm. Many advisers avoided the Madoff ponzi scheme because when they asked simple questions. When they found out that Madoff managed funds were not held by an independent third party brokerage firm they didn't invest. Never hand over custodian ship of your portfolio to your advisor.
If your advisor has you write a check or transfer your assets to them, you are probably never going to see your money again. I know I said it before but Never hand over custodianship to your advisor. The check should be made out to your custodian (i.e. Schwab, Vanguard, Fidelity).
Be wary of the promise of unreasonably high return with virtually no risk. There is no such thing as a free ride. This tripped up both the Madoff and Stanford investors. Stanford promised huge returns on risk less CDs. In addition, most investors assume that all CDs are FDIC insured up to $250,000. They are not. An advisor may say or promise that their CDs are insured or guaranteed but by whom? If ii is not FDIC insured don't invest. Be sure to ask alot of questions.
Do Not Invest in Anything You Do Not Understand. If your advisor can't explain it to you simply then they do not understand it or they are trying to take your money. Bottom line, it is your money so there is no such thing as a simple or stupid question. If your advisor becomes annoyed then find a new one. Do not invest in a fancy catch phrases (Stanford Investment Model or SIM) or a black box (Madoff's supposedly winner options trading strategy).
Finally, Listen to your gut. If you are uncomfortable and feel under pressure to sign with an advisor, then leave. It is alright to look foolish. In fact, it might be the smartest thing you have ever done. If after additional research and thought you change your mind, I guarantee that the advisor will still be happy to help you with your portfolio.
A smooth talking con artist is always happy to separate you from your money so stay alert!