By now the entire investing world knows about the huge fraud perpetuated by Bernard Madoff. While no one can excuse his actions, there were many warnings signs that investors ignored.

Simply put, when it comes to selecting an investment manager or any investment vehicle, you need to be a truly informed consumer. This is true whether you're putting your money into a hedge fund, mutual fund or a separately managed account.

I wrote a letter to all of my investors that explained how LakeView Asset Management (my firm) has built-in safeguards to prevent a Madoff-like fraud. So what are a few things that, as an investor, you should look out for and ask before you select an investment advisor? Here are five key questions.

1. Is the Advisor Registered?

Ask the advisor if they are registered. If not, then act cautiously. I might be prejudiced in my belief because LakeView is a Registered Investment Advisor. However, investors should be comforted by the added level of scrutiny that registered advisors must go through and the information that is available to them.

What kind of information?

There are annual updates to the company's disclosure documents known as Forms ADV and ADV Part II. You can search public records for the advisor right on the Security and Exchange Commission's Web site (direct link). Furthermore, a registered advisor is required to provide each potential client their Form ADV Part II prior to commencing an advisory relationship. (I make my ADV Part II publicly available on my firm's Products & Services Web page. Also, all representatives of the RIA must pass a licensing exam and be registered with regulatory bodies. You can check on those individuals to see if they have had any complaints or violations in the past. Can you say the same for an unregistered investment advisor or hedge fund manager? No.

2. Is There Transparency?

Ask the advisor how often and by what means you can obtain an independent and verifiable statement of your investments. Here's why: If the investment advisor is also responsible for preparing and issuing customer statements and reports, then that should raise a warning flag.

Furthermore, the longer the lag is between a reporting period and you receiving a verifiable accounting, the more suspect the advisor or the investment. For example, if you obtain an independent valuation of your investment 60 days after the end of every quarter, then the information is simply too old to make an informed investment decision as to whether to stick with the investment, liquidate or add to it. 60 days also gives the advisor more time to "cook the books" and prepare fraudulent statements -- as Madoff did.

What should you look for? Here is what I provide to my clients:

Real-time account access through the Internet.

A separate brokerage statement from a broker-dealer that is unaffiliated with my firm.

3. Is There Independent Custody and Control

Ask the investment advisor if there are any conflicts of interest between the advisory activities and brokerage, custody or clearing functions. These were some of the warning signs that were quite evident with Madoff. Madoff was the investment advisor, broker, clearing agent and custodian for all of his client accounts. Madoff sent out customer statements and investor analysis reports.

Whether it is a hedge fund that utilizes a prime broker or an investment advisor who trades and clears through a broker-dealer, there must not be any association between the investment advisor and the brokerage, custody or clearing service providers.

Furthermore, the investment advisor should not have the power to dispense funds from a client account other than for the payment of contractual fees. Also, the advisor should not have any other powers other than that to transact securities.

4. Do You Have Timely Liquidity?

You need to ask the advisor what degree of liquidity the advisor will provide. Madoff essentially ran a Ponzi scheme, which relied on bringing in new investors to pay off existing clients. Madoff therefore had to persuade his investors not to pull out money or else the pyramid scheme that he set up would crumble under its own weight. This is similar to what the movie characters Max Bialystock and Leo Bloom did in the comedy The Producers. However, with Madoff, the result was tragic.

Many hedge funds have "lock-ups" that require an investor to remain invested for a minimum period of time. Furthermore, voluntary withdrawals are limited to certain windows, such as quarter-ends. Plus, those withdrawals are subject to a notice period of as much as 30 days or more! In fact, you now hear about such hedge funds as Citadel that have halted investor withdrawals regardless of the withdrawal window or notice period.

A lack of investor liquidity should raise immediate warning flags.

Mutual funds will distribute liquidations on a trade date plus one day. At LakeView, while my contracts provide for 30-day notice to close accounts, I have always waived this provision and all requests for withdrawals are met immediately -- without hesitation.

At the end of the day, it's your money. Make sure you invest in a vehicle that allows for timely and unrestricted liquidation.

5. Do You Understand the Investment Strategy?

Ask your investment advisor what their strategy is? Understand the basics by which your money will be managed. For example, is the investment in a growth and value; long/short; convertible arbitrage; or technical analysis strategy?

You don't have to know the every detail or all the mathematics behind how the money is managed, but some knowledge about the general strategy should be mandatory. Make sure that the investment advisor is willing to provide the necessary time to explain to you what their strategy is. If they hide behind a veil of secrecy (as Madoff did), then you should be wary.

My strategies and investment philosophies are clearly stated in brochures that I provide to all potential investors.

Being an informed consumer expands the role of being a savvy investor. There are many honest and hard-working investment advisors to choose from. Do your due diligence by researching and interviewing the advisor before you send over any of your money.

Finally, one of the biggest mistakes that Madoff's investors made was to invest an overwhelming amount of their assets with Madoff. It is as important to diversify among investment advisors as it is to diversify amongst investments.