Madoff, One Year Later: What You Should Know

Many of the investment custodians used by independent advisers operate retail branches throughout the country. These firms include Charles Schwab, Fidelity, Scottrade and TD Ameritrade.

This offers another opportunity for you to check up on your account -- and what your adviser is doing -- by simply walking in and asking questions. And if you have concerns about what your adviser is doing, this is one place to bring those concerns.

I'm not suggesting that you should avoid doing business with a firm if the custodian does not have a local office, particularly if you live in a rural location. It just provides an extra level of assurance.

If there is no local office, then call the toll-free telephone number on your account statements to ask questions and raise any concerns.

Understand discretion.

Make sure you know the difference between discretionary and nondiscretionary authority.

Discretion is authority given to an adviser to place trades in an investment account without giving advance notice to the client each and every time. The adviser is supposed to follow guidelines agreed to with the client, but otherwise is authorized to buy or sell securities they deem appropriate.

Nondiscretionary authority means the adviser must check with you before placing a buy or sell order. This slows down the process, but it keeps you in the loop as to what's happening and when.

There are pros and cons to each approach; just make sure you understand the difference and how your adviser operates.

If you're not comfortable granting discretion to an adviser, do not grant it. Instead, seek out one that will work with you on a nondiscretionary basis.

Good Habits

Review statements.

Make it a habit to periodically review your account statements when they arrive. It's important to understand how your accounts operate even if you've handed off investment selection and implementation to someone else.

Some statements are better prepared than others, but it's always going to take a little work on your part to understand them.

Make sure you pay close attention to account activity. Many investors study their account values to see whether they have gone up or down, but then ignore the account activity portion of their statements.

That's a mistake.

You want to look at what money is going into the account and, most importantly, what's coming out. If you're not sure what to look for, then check for the minus signs. They usually signal some type of debit from an account.

Money can be removed for a number of legitimate reasons -- trading commissions, adviser fees or account transfers -- but make sure you know why. If you don't, ask.

No blank forms.

Quite often, for client convenience, advisers will prepare the voluminous paperwork that can be required to open an investment account or transfer assets. This is a common and legitimate practice.

But never sign a blank form that an adviser says he will fill out later. And, of course, review the documents you are signing before doing so.

And, if you'd like to an extra layer of comfort, tell the adviser you'd like to take the forms home to look over and then mail them yourself.

I can't guarantee these steps will inoculate you from the next Bernard Madoff, but they will go a long way toward reducing the chances of it happening.

Remember, trust but verify.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

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