It’s an understandable thought: if two pretty smart guys like Steven Spielberg and Elie Wiesel could get scammed by a crooked adviser to the tune of millions, surely it could happen to anyone. In fact, although Bernie Madoff’s $50-billion Ponzi scheme was deemed the biggest in U.S. history, the actual number of individuals caught up in the scam was relatively small. Still, the impact on investors’ psyches — particularly in the wake of the larger economic downturn — has been enormous. With all of the horror stories in the headlines, hiding one’s money under the mattress can seem more appealing than entrusting it to a stranger. Low return, yes — but at least you can keep an eye on it.

Fortunately, there are things you can do to safeguard your money against double-dealing advisers. The most important rule, says Alex Popovic, vice-president of enforcement for the Investment Industry Regulatory Organization of Canada, is trust your gut. “If it sounds too good to be true,” he says, “it probably is.”

This seems like an obvious point, but most people would be amazed to find out how few investors actually follow it. Most of Madoff’s targets were promised anywhere between 10% and 53% returns — at a time when typical rates of return were between 4% and 8%. Not only that, he offered investors a guaranteed return, and his hedge fund never had a bad year. That type of consistency, says Patricia Lovett-Reid, a senior vice-president with TD Waterhouse Canada, should scream scam. Run the other way.

If you really want to protect yourself, you are probably best to approach finding a financial planner the same way you might approach purchasing a new TV. These days, no one buys a flat screen without reading online reviews, talking to friends and comparing prices. It can take weeks or months of research before someone drops their dough on a brand new television. But when it comes to financial planners, most people don’t bother checking to see if their guy is even registered.

In Canada, each province has its own securities commission website where people can see if their adviser checks out. Earlier this year in Quebec, self-proclaimed financial adviser Earl Jones was arrested for swindling 100 people or so, mostly family and friends, out of $50 million in a Madoff-like Ponzi scheme. He was well-liked and trusted — until, that is, he disappeared in early July and his scam came crumbling down. He was arrested on July 27. If Jones’ clients had logged onto Quebec’s securities commission website and done a quick name search to check his credentials, a blank screen would have come up.

Perhaps the easiest way to safeguard yourself against charlatans is a good old-fashioned Google search. If any disciplinary actions have been taken against a planner, they will show up online — securities commissions and regulatory organizations like IIROC and the Mutual Fund Dealers Asociation issue press releases on their investigations.

When you do eventually sign on with an adviser, make sure you know exactly what it is they’re selling you before you commit your cash. One reason Madoff got away with so much, and for so long, was that his “products” were so complex that people just took his explanations at face value. Big mistake. Bill Singer, a lawyer and investor advocate based in New York, likens the stock market to a casino. “A dealer tells you the minimum bet is $100,” he says. “You ask what the rules are. If they explain them and you don’t understand, will you still sit there and bet? Of course not.” Also be wary of the word “guaranteed” (unless it’s a GIC or bond). After all, if this person is dishonest, his word isn’t going to be worth much.

Be cautious of anyone trying to push an investment on you. Tamera Van Brunt, a spokesperson with the Alberta Securities Commission, says investors should never be told they have to buy now or risk missing an opportunity. “That tactic is used to pressure investors so they can’t do their homework,” she explains. Don’t write out cheques to an adviser, either. Robert Abboud, a CFP and author of No Regrets: A Common Sense Guide to Achieving and Affording Your Life Goals, says money for an investment should always be paid to the fund company.

There are other ways to ensure you’re not working with the next Madoff — expect twice-yearly statements from the fund company, for example, and don’t invest in anything offshore. And don’t trust fancy letterhead, either. “Anyone can create a name that sounds official and try to conduct business,” says Abboud.

But ultimately, investing always comes with some degree of risk, and even the most diligent researcher can’t be certain that the people he’s working with are entirely honest. This is why investors need to ensure they’re involved in the process at every step. Not even the mattress approach is 100% foolproof.

Appeared in Canadian Business magazine on October 12, 2009.

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