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Advisers deal with Madoff effect
The infamous investor is headed for prison, but local advisers say their clients remain skittish
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Published: June 30, 2009
CHARLOTTE - Bernard Madoff might have been sentenced to 150 years in prison on Monday for his role in the largest financial fraud case in history, but financial advisers say they're still feeling the fallout from his $60 billion investment scheme.
Diane Willis, a certified financial planner and president-elect of the 430-member Financial Planning Association of Charlotte, says financial advisers are bracing for more questions from clients and more regulations from the government as a result of the Madoff's highly publicized case.
She expects to see new rules about how investment advisers handle clients' money. Willis is also optimistic that the economy will begin to turn around and that even the most hesitant clients will feel more comfortable with their investments.
Willis, who founded Wilshire Financial four years ago and has been a financial adviser for about 20 years, spoke with the Observer about the recession, Madoff and when the economy will rebound. Questions and answers have been edited for brevity and clarity.
Q. How has the Madoff case affected your industry?
I feel like Madoff took something from more than just his clients. He took something from all Americans who are investing and honest advisers as well.
What he took from the general public was confidence in capitalism and the financial system. He created some doubt that any financial adviser could be trusted.
What he's done to advisers is given us the burden of being associated with this. The regulations that are going to come down from this are going to be a burden, too. They're going to detract from taking care of clients and doing what we do.
Q. Has your relationship with clients changed as a result?
No -- we've known each other for many years. They do wonder, however, exactly what he did and how he was able to do it for so long. Unfortunately, the public is often confused about how the industry works, and they don't know what questions to ask before hiring an adviser. The public doesn't know how to look out for a situation where an adviser has too much control over the money. That's where the regulators are going to be taking a closer look.
Q. What should people know about choosing an investment professional?
Consumers need to be clear about what they're looking for. Is it simply someone to place trades for them, or do they want true advice? They also need to know who is making their investment recommendations and how everyone is being paid.
The most important thing to ask is where their funds will be held, who has control and under what circumstances they can be accessed. It's OK to like your adviser, but never hire them solely for that reason. I think many of Bernie Madoff's clients may have made that mistake.
Q. What are the most important traits of a good adviser?
A good financial adviser will take the time to get to know his client and how investments fit in the client's overall goals. He will provide clear advice, disclose all fees, set clear expectations of the relationship and put the client's needs first. Look also for experience and clients who have stayed through several market downturns.
Q. How is your industry doing? What trends have you seen with the recession?
Many clients are still in a wait-and-see mode. No one wants to make serious changes until they have a better handle on what's going on.
The industry is undergoing many changes, with more advisers going into the independent channel and more regulation coming our way. We still have not done a good job of informing the public of the differences between a financial planner, a financial adviser and a stockbroker.
I'm not going to touch that one, but to me, there is a difference between someone who gives advice and someone who is selling a product.
Q. What questions have clients been asking?
The questions I'm receiving tend to be fairly short-term focused. In many cases, people are forgetting their overall investment strategy.
With the advent of online trading and CNN, people believe they have the ability to do it themselves, with no plan in place. The main thing is to get them to take a step back and realize this, too, shall pass. Sometimes they call just to hear my voice and hear me remind them of this.
Q. When do you expect the economy to turn around?
The economy is already showing small signs of improvement. I hope we don't see too much, too soon. This particular recovery needs to take its time and create a solid foundation under it. I believe we'll continue to see small improvements for the remainder of this year and then some growth next year.
Q. Are advisers and clients optimistic overall?
I'm sensing a much lighter feel to the attitudes. People are sensing that there's a light at the end of the tunnel. There always
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