The next Bernie Madoff is knocking on your door. How do you protect yourself?

If you haven't read at least 25 articles about Bernie Madoff by now, you must be living under a rock (frankly, I am amazed how you could even have found my blog). It is a sad tale, a Ponzi scheme that in the end might total $50 billion in losses for unsuspecting investors. Look at that picture of Madoff and it is easy to imagine how that respectable, nice looking man swindled sweet old grandmas who didn't know better. However, Madoff didn't only go after this most vulnerable category, he targeted some of the worlds most savvy investors. The victims reportedly include financial institutions such as HSBC and Barclays PLC and charities such as the Jewish Community Foundation of Los Angeles.

How exactly did he do it? I'm not going to break it all down here - it's way too complex for me to understand. It will take teams of forensic accountants several months to decipher all of his methodologies, and you can bet that it will all be boiled down to an NBC Movie of the Week. Perhaps this drama is worthy of a theatrical movie directed by Steven Spielberg (another Madoff victim). I do know that his most powerful tool was Word of Mouth Advertising (WOMA). Every happy customer tells friends and family, and with the paper returns Madoff was showing, his customers were quite exuberant.

Imagine that your multimillionaire friend, uncle or mentor casually dropped you the line about Madoff. How could you possibly not jump at the chance to invest and get some of the action? In fact, you'd probably be mad that your uncle enjoyed 35 years of steady returns before he told you about this financial wizard. Forget about doing any due diligence, you'd be there with your arm extended, blank check in hand. You too would have been a victim.

While this is being referred to as the Ponziest of all Ponzi schemes, there are certain free websites you can search to limit your exposure when selecting a financial adviser. Although these aren't 100% bulletproof even if the adviser is listed, you should definitely raise a red flag if your adviser or broker does not appear on these sites. They are highlighted in Mary Pilon's recent Wall Street Journal article and include:

• Financial Industry Regulation Authority (FINRA) - According to the site, "FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services." Visit www.finra.org/brokercheck and check credentials of financial advisers, brokers and securities firms.


• Secuities Investor Protection Corporation (SIPC) - According to the site, "SIPC protects customers of broker- dealers as long as the broker-dealer is a SIPC member." To check verify this, visit www.sipc.org/who/database.cfm.


• U.S. Securities and Exchange Commission's (SEC) Investment Adviser Registration Depository (IARD) - Visit www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx to see if verify an investment adviser is registered with the SEC and to see if there are any disclosures about disciplinary events involving the adviser or its key personnel.

Although these Three Letter Acronyms (TLAs) can be confusing, the sites are quite simple to navigate. Spend a few minutes of time doing the due diligence and you'll severely limit your risk of becoming a victim. Too bad it's not this easy to pick winning stocks!

Next up: How can email save you money?