It’s a tough question to ask, but many of my brave clients have asked it: “Dave, how do we know you are not Bernie Madoff?”
You’ve heard a lot of scary news during your lifetimes, and the thought that some financial advisor could abscond with all of your money is terrifying.
So let’s look at how all of this works.
The investment advisory world is HIGHLY regulated, but also somewhat confusing to the consumer.
I am regulated by three separate authorities:
-The SEC (The Securities and Exchange Commission)
-FINRA (Financial Industry Regulatory Authority)
-The Florida Department of Financial Services
As a fiduciary, my activities are primarily supervised by the SEC.
Wow, this IS really confusing. Let’s look at this a different way. Let’s look at how Bernie Madoff got away with his shenanigans and pretty quickly I think you’ll feel better.
When someone signs on with me, we hold the electronic bond and stock certificates at TD Ameritrade. Put another way, I don’t have your money. A big bank has your money. If you call TD Ameritrade directly they can answer any questions you have about your accounts.
As you can see, there are “checks and balances” in place. I do not have direct access to your money. The money is not being held at Kennon Financial. I am not a bank.
The SEC and FINRA closely monitor all activities in my office in Sarasota AND of TD Ameritrade. If I were to ever have a lien on my property, or claim bankruptcy, or receive a customer complaint, or even get pulled over for DUI, I have to disclose the information to these governing bodies. Put simply, they do NOT mess around. You can check out any advisor’s history at FINRA Broker Check and SEC Investment Adviser Public Disclosure.
So how did Bernie Madoff get away with it?
It wasn’t overly complicated, and Bernie wasn’t the guy who invented the concept.
You see, in addition to advising people on their finances, Bernie started his own bank. Starting up a bank/custodian is not illegal in and of itself. But Bernie took things a step further.
At its essence, his crime was simple. When you worked with Bernie you were signing over your money to the “Bernie Madoff Bank.” There were no “checks and balances.” The only place to get any information about your money was by calling Bernie:
You: “How are the investments working out, Bernie?”
Bernie: “Great! Would you like us to send you a current statement?”
They were faking statements, for YEARS.
There were no checks and balances. Bernie had all the control. When the crash hit in 2008, clients were asking for their money and the Bank of Bernie had run dry. Bernie had spent the money on solid gold toilet seats and penthouse apartments. Then, and only then, did things come to light.
So relax. You are safe. Just never write any checks to “Kennon Financial.” I even have to pay people to supervise my own business. It may sound strange, but we need to do everything we can to protect the consumer.