Skepticism and Common Sense

While changes in financial regulation (both changes in enforcement and structure) may provide additional comfort to investors in this post-Madoff era, regulation will never eliminate the need for skepticism and common sense. Via BusinessWeek:

Right now, fraud is at the forefront of everyone's mind, and many investors are taking due diligence seriously. But even so, some advisers notice their clients slipping back into the sort of habits that got Madoff investors in trouble in the first place. Peter Turecek, a senior managing director at risk-consulting firm Kroll, says people are desperate to make back the money they lost in the past 18 months. That makes them susceptible to Madoff-like scams. "It's almost a catch-22," Turecek says.

Jason Thomas, chief investment officer at wealth manager Aspiriant, says he already has clients coming to him with investments that appear too good to be true. When he asks them why they want in, the answer is inevitably the same: A smart friend is making a bundle in it. It's human nature, Thomas says. "We're greedy," he says. "We don't want to be riding the bus. We want to be in the town car."

Investors would do well to remember not to let greed outweigh common sense and a healthy dose of skepticism when considering possible investment options.