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The press has been full of reports of Bernard Madoff's Ponzi scheme in which he stole some $50 billion from his clients. Madoff's arrogance and callous disregard for the fortunes of the charitable foundations, private banks, and wealthy friends for whom he managed money is the stuff of legends.

The sad part is that Madoff did not and could not succeed on his own. He succeeded in his criminal endeavors because of the blind trust and naivete of his clients. No financial advisor - regardless of reputation or charm - deserves blind trust. And every client - regardless of wealth or sophistication — deserves a full and UNDERSTANDABLE accounting of how their investments have performed. In the case of Madoff, it seems that most of his clients followed the "don't look a gift horse in the mouth" phiolosophy and were delighted with the paper returns they were shown even if they had no idea how those returns were achieved. They would have been better served by adhering to the adage "if something looks too good to be true, it probably is."

Hindsight, of course, is 20-20; but every investor can learn from this scandal by following some simple guidelines:

• Know who serves as the custodian for your account. For 401(k) plans this is typically the plan provider (e.g., Hartford, Fidelity, or ADP) and for brokerage accounts it is a specific broker-dealer like Charles Schwab, Fidelity, or Merrill Lynch.
• Make sure you receive quarterly statements from the custodian detailing all activity within your account. You advisor may supplement these reports with additional information, but the custodian reports are the foundation.
• Never write a check to or deposit money into an entity other than the custodian — i.e., never write a check to your financial advisor for funds that you want to invest. (The only exception to this rule is if you are paying a fee to the advisor — i.e., fees that are charged for a service and are not being deposited in your account.)
• If you don't understand your quarterly statements and your advisor can’t explain the activity, get a third-party to review them.

There are people like Madoff in every industry, but the arcane goings-on of the investment world probably make it easier for his type of greedy charlatan to succeed. You can prevent yourself from falling victim to this type of scam by keeping your eyes and ears open and asking a lot of questions. You worked hard to earn your money, and your advisor should work just as hard. And he or she should work the old-fashioned way with insight and analysis - not with smoke and mirrors.