Can You Avoid a Madoff-Style Ripoff?

How do I check my accounts?

Even when relying on a reputable financial adviser, you should be able to check on your accounts at any time. Don't simply wait for a monthly statement to arrive. In between statements, call the custodian or log on to your accounts at the firm's Web site to check account balances and verify recent activity.

How are you registered?

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Advisers can go by a number of different descriptions -- financial planner, investment adviser, broker, financial consultant, etc. From a legal point of view, however, most financial advisers fall into one of two categories. They are either a registered investment adviser or a registered representative.

Registered investment advisers agree to adhere to a fiduciary standard that puts a client's interests before their own. Depending on their size, RIAs may be registered either with the Securities and Exchange Commission or with the states where they do business. I operate as a RIA registered with the state of Massachusetts.

You can confirm a firm's registration as an RIA by visiting the SEC's Investment Adviser Public Disclosure Web site at www.adviserinfo.sec.gov.

If you're dealing with a registered investment adviser, ask to see his or her Form ADV Part II, a disclosure brochure that outlines the adviser's background and business operations, including fees.

Registered representatives are brokers who sell securities and insurance products and may be affiliated with a large Wall Street firm like Smith Barney, a local bank or an independent broker dealer you've never heard of. Registered representatives typically get paid by commission and may put their interests ahead of a client's provided the investments they recommend are deemed "suitable."

Brokers are registered with the Financial Industry Regulatory Authority, or FINRA, which maintains the BrokerCheck Web site at www.finra.org/brokercheck.

Do you exercise discretionary or nondiscretionary authority?