Protect Yourself in Post-Madoff Investing World

Says Stolzmann: "Advisers are often breathtakingly irresponsible in either concentrating a client's account all in equities or in a handful of individual securities. It's one thing for a 25-year-old to be invested entirely in equities, but quite another for a 75-year-old retiree to be exclusively in stocks." Investors could recover losses and attorney's fees if they can show that an adviser failed to appropriately allocate and diversify portfolio investments.

He points out a little-known fact that most investors waive their right to sue and agree to arbitration when they sign papers to open their accounts. While arbitration is theoretically a place where investors can represent themselves, a good attorney can help when large sums of money are involved.

Check Before Writing a Check

It's far wiser to be sure than to sue later. So here are some ways you can check the records of the people who might ask for your money for an investment opportunity.

• FINRA.org: This is the self-regulatory body of the securities industry. There's a tool called "BrokerCheck" that allows you to look up a securities firm or individual broker, and check for securities violations in the past.
• AdviserInfo.sec.gov: Since investment advisers do not necessarily have to be registered as brokers, you'll also want to check out the SEC's Web site for any registered investment adviser's background. Don't give your money to anyone who isn't registered with the SEC.
• Google: This is the simple way to start checking someone out. Just Google the name or company name. You may find postings on a complaint board, alleging fraud or mismanagement. That's just word-of-mouth, of course, but it is a warning that should trigger further investigation.

But even as you do a checkup, keep in mind that not all brokers and advisers are registered, and not all activities -- especially those outside the financial-services industry -- are revealed in these registrations. In other words, trust your instincts. Don't follow the crowd over the cliff just because "everyone else is doing it." Your mother taught you that in third grade. She was right! And that's the Savage Truth.