How to Hold Money Managers Accountable

Another red flag, experts say, should have been the consistently positive returns his firm provided, even in the face of severe market turbulence. For instance, Madoff claimed an average return of more than 10 percent a year, with very little price volatility, in both up and down markets.

That may have been one reason investors didn't ask questions, says Michael Martin, a financial planner and president of Financial Advantage, a planning firm in Columbia, Md. "They may say 'I've got something here that other people don't know about, so I'll keep my mouth shut.' "

In addition, he notes, the financial business is filled with many smart people with good social skills that they use to gain the trust of potential clients. That may be fine, Martin says, but, quoting former President Ronald Reagan, he adds: "Trust, but verify."