3 Red Flags in Client Services Inspired by Bernie Madoff

Recently I enjoyed Netflix’s docuseries Madoff: The Monster of Wall Street, which tells the story of Bernie Madoff’s epic Ponzi scheme and its fallout. There are many parts of the Madoff story that make you go, “WHAT? HOW??” Madoff’s clients were knowledgeable and savvy, and several worked in the financial industry. There were many signs of trouble, but for decades people willfully ignored them — including the Securities and Exchange Commission.

As a client services professional, what struck me most was the relationship Madoff had with his clients and why they trusted him. Throughout the series, whenever journalists who covered Madoff described interactions he had with his clients, my skin crawled. In retrospect, there were many tells that something was wrong.

When you’re working with a services provider, here are three red flags to look out for. If you get a glimmer of one or more of them, that agency isn’t worth your trust.

#1: Cult of personality

There were a lot of reasons smart, experienced people trusted Madoff to manage their life savings. The main reason was his firm’s (mathematically impossible) high and consistent returns. The other reason was Madoff himself. 

Many people who run client services firms are egomaniacs. (I’m allowed to say this because I run a client services firm.) They build a cult of personality around themselves because there’s no better marketing. They are the product they’re selling, so they work tirelessly to paint themselves as the most knowledgeable expert, the most powerful partner, the pro who has cracked the code and can do things that others can’t (like, say, consistently capture gains from the stock market month over month, which we all know goes up and down). 

The enormity of Madoff’s profile on Wall Street — the positions he held (chairman of NASDAQ!), the reputation he built, the magazine covers, the billionaire lifestyle he enjoyed, the swirling mythology of the man — all contributed to his being untouchable and unquestioned. 

Also, Madoff’s client roster included celebrities and titans of industry, so he created an exclusive club that only VIPs could get access to. That meant new clients with new money were always clamoring to get in the door — and once they were in, they felt privileged to hand it over, no questions asked.

#2: Lack of transparency

When folks did ask the very simple question: “How are you getting these kinds of consistent returns on my money?” Madoff’s answers were vague marketing-speak. When pressed, Madoff fell back on, “If you want to pull out, go right ahead.” No flag is more red than that one.

If your service provider can’t show their work, and describe in plain language exactly how they do it, something’s wrong. Don’t accept secrecy or a lack of transparency from service professionals.

#3: Low-quality artifacts

The artifacts your service provider delivers to you should meet a basic industry standard of quality: whether they’re financial statements or Figma wireframes. If they don’t, there’s something wrong. If the artifacts are sloppy, the service probably is as well. 

Madoff’s firm printed out their clients’ financial statements on dot matrix printers well past the point laser printing became the norm, on flimsy, thin paper in a non-industry-standard accounting style. I can’t stop thinking about this. Just look at what a Madoff statement looked like in 2004.

Trust is everything

At some level, Madoff was a people-pleaser who wanted to enrich his clients no matter what it took. In the end, he defrauded them of billions of dollars because he was able to capitalize on the trust they placed in him (as well as their greed). 

When you work in client services, you know that relationships are your business, and trust is the cornerstone of all relationships. Make sure the professionals you work with earn and continually re-earn your trust throughout the course of your partnership.

Gina Trapani (she/her) is CEO at Postlight. Send her a note at gina.trapani@postlight.com or follow her on Twitter.