That pickleball tournament was one for the ages.
My son and I did not fair very well at all. I was the weak link between us. After the tournament, he told me he would never be my partner again.
I understand. It's nothing personal. He needs to consider his long-term pickleball plans. High school pickleball team. Scholarship to college for pickleball. The prestigious pickleball pro circuit. God forbid he has to play with his unathletic Dad.
My daughter, Senay, won second place! There was a lot of controversy. The first-place team had won the same number of games as Senay. The tiebreak system was unfair and confusing. Many feel she was cheated out of her gold. We're still proud of her!
It’s a tough question, but many of my brave clients have asked it: "Dave, how do we know you are not Bernie Madoff? He was a notorious criminal who ran a Ponzi scheme posing as a financial advisor in the early 2000s. Maybe you are the same."
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.
Three separate authorities regulate me:
1. The SEC (The Securities and Exchange Commission)
2. FINRA (Financial Industry Regulatory Authority)
3. The Florida Department of Financial Services
When I act as a fiduciary (always), my activities are supervised by the SEC.
In the past, when I had acted as a broker (getting paid commissions on a transactional basis), I was supervised by FINRA.
Wow, this IS confusing. Let’s look at this differently. 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, huge bank has your money. If you call TD Ameritrade directly, they can answer any questions about your accounts.
As you can see, "checks and balances" are 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 Sarasota as well as with TD Ameritrade. Suppose I were ever to have a lien on my property, claim bankruptcy, receive a customer complaint, or even have a minor misdemeanor. In that case, I must disclose the information to these governing bodies.
So how did Bernie get away with it?
It wasn’t overly complicated, and Bernie didn’t invent the concept.
In addition to advising people on their finances, Bernie started his own "bank." At its essence, his crime was simple. You signed over your money to the Bernie Madoff Holding Company when you worked with Bernie. There were no checks and balances. The investor (Bernie) also owned the bank. The only place to get information about your money was by calling Bernie.
For Example:
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 asked for their money, and the Bank of Bernie ran dry. Bernie had spent the money on solid gold toilet seats and penthouse apartments. Then, and only then, did things come to light.
I also find this amusing: It turns out that when Bernie got your money, he would immediately turn about and deposit it into his personal Bank of America account. It was that simple. Nothing was ever invested. He didn't utilize some fancy investment scheme. It just sat in cash, getting .1%.
There must have been billions of dollars in there. Ponzi schemes work great until many people want their money, which means you're writing checks out of your bank account, and then that first check bounces. Then it all falls apart really quickly.
Be Blessed,
Dave