Fisher Investments Executive Chairman Ken Fisher on Money Manager Financial Fraud

Bernie Madoff is perhaps the most infamous of financial scammers since Charles Ponzi himself. Investors were alarmed that he managed to bilk people out of billions of dollars over decades without getting caught. What warning signs were there, if any? What can investors do to properly vet financial managers to avoid what happened in the Madoff case?

In mid-2009, Ken Fisher, long-time Forbes columnist and Executive Chairman of Fisher Investments, released a book called How to Smell a Rat: The Five Signs of Financial Fraud. In this book, Ken Fisher provides readers with the basic 'playbook' most fraudsters employ. According to Ken Fisher, most issues can be often avoided once investors know how to ask the right questions to detect red flags.

Ken Fisher – Bestselling Author, Columnist, Financial Guru

Ken Fisher

  • Forbes “Portfolio Strategy” column ran from 1984 to 2017, making Ken the longest continuously running columnist in the magazine’s history
  • Recognized as one of the top 30 most influential individuals in the investment industry over the last 30 years1
  • Author of 11 books, including 4 New York Times bestsellers
  • Executive Chairman of Fisher Investments with billions of dollars in assets under management
  • Top-ranked market forecaster by CXO Advisory Group2
  • Globally recognized as a financial guru



 

How to Smell a Rat How to Smell a Rat provides five basic tips on how to avoid falling victim to financial fraud. If you follow these guidelines, you will likely reduce your chances of falling prey to financial scams.

Ken Fisher's five tips are:
1. Separate the assets from the decision maker.
2. Returns should fluctuate from year to year--consistently good returns can often be false.
3. The investing strategy should be clear, and more importantly, explainable in easy to understand terms. Watch for too much flash.
4. Exclusivity is not a benefit. Ever.
5. Be your own proponent - there are no bad questions because it's your money that's at risk.

Note: If you follow only one piece of Ken Fisher's advice, let it be tip #1: always keep your assets separate from the investment decision maker. It's the biggest red flag of all. All the other tips will help, but your worries can be lessened if you comply with this first vital tip.
 

Ken Fisher, Executive Chairman of Fisher Investments, discusses the problems you may face if a portfolio manager has custody of your assets and why this may lead to problems. The following are excerpts from his 2009 New York Times bestselling book How to Smell a Rat.

"An age-old Western saying related to how to keep people from stealing things from your wide open spaces is "good fences make good neighbors." To avoid being victimized by a future Madoff-style Ponzi scheme (because there will be more—count on it), that’s the single best advice."

"In other words, the money manager or financial adviser also acts as the bank or broker/dealer--holding and supposedly safekeeping the assets he/she/it manages. Clients didn't deposit the money with a third party--they deposited the money directly with the decision maker. Then, it's the decision maker's responsibility not only to decide to buy this stock and not that one, but also to keep and account for the money and all securities that may be owned. In taking custody, the adviser entity literally has the ability to spend the money in any way it sees fit or take it out the back door and flee to Mexico--any old time he wants."

Finding a financial advisor can be a challenging process. Many investors lament there isn't enough education and guidance out there. But now with Ken Fisher's book, investors have a framework for finding a reputable advisor.

For more information, visit the official How to Smell a Rat website. Or for more books on wealth and investing, visit Fisher Investments Press.

1Thirty for Thirty, Investment Advisor, 5/1/2010

2www.cxoadvisory.com/gurus. Based on a report completed in 2013 by CXO Advisory Group. The final report, titled “Guru Grades”, contains accuracy ratings for 68 forecasters collected over a period from 2005 to 2012 including market forecasts by Ken Fisher as published in Forbes. Ken Fisher's market forecasts in Forbes represent his personal forecasts of the overall market and are not an indication of the performance of Fisher Investments. Not all forecasts may be as accurate as those in the past. Investing in securities involves the risk of loss. Past performance is no guarantee of future results.