Tuesday, August 2, 2011
What would your best recommendation be towards the investment of your client with Madoff?
As part of your accounting services you provide limited financial planning services to your clients. One of your clients asks you to review their portfolio and make recommendations for investing an additional $100000 they currently have in cash. In reviewing their portfolio you note that the client is adequately diversified for their age between fixed income and equities. The equity portion of their portfolio is heavily weighted in an investment with a private money manager named Bernard Madoff. Those securities have outperformed all the other investments by 3-4% per year. When you ask the client about the investment, they tell you that they feel lucky that they have been able to get Mr. Madoff to accept their account. His minimums are usually over $1 million, but because several of their friends also invested with him at the same time, he waived the minimum and took their investment of $250000. They further told you that Mr. Madoff was formally president of the NASDAQ and has a track record of over 25 years of beating the S&P 500. You do your due diligence and confirm your client's statements about Mr.Madoff. He does indeed have a long term track record and was one of the founders of the NASDAQ. On Wall Street, he is considered something of a guru, not unlike Warren Buffet, but with a different emphasis.
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