Trust, but verify. The jargon of nuclear arms negotiations of three decades ago has become the lingua franca of the financial advisor's universe today, as clients and planners alike cope with the fallout from Bernard Madoff's epic $50 billion fraud.

"This has always been a big issue for financial advisors; our clients rely on our expertise, but they're also aware that any of us who are less than ethical are in a unique position to betray their trust," says Todd Millay, managing director at Choate Investment Advisors in Boston. "Our model is far away from the Madoff model—we don't invest in hedge funds, we have an outside custodian, we are audited by a solid firm—but even so, we have been explaining to all our clients, again, why it's not possible for anyone here to do anything like that."

Millay and others are going to such great lengths because they know that as clients' wealth accumulates, their ability to trust diminishes. Are new friendships real friendships? To what extent might the friends' interest in them have to do with their wealth? They worry about fortune hunters marrying their children, being lured into bad investments and being taken advantage of by their advisors. The newer the relationship, the greater the potential level of anxiety. Madoff's Ponzi scheme played into all those existing insecurities.

Madoff's clients unwittingly helped him in his fraud by referring their friends to the firm. Since most independent advisors who work with the ultra-wealthy don't advertise, most of their business also comes through referrals.

"People go by what other people say—but now they're worried they can't even trust their friends' referrals," says Harold Evensky, financial advisor and co-founder of Evensky & Katz Wealth Management in Coral Gables, Fla.

Regaining Trust

A potential or existing client who scrutinizes some of the superficial parallels between Madoff's business model and those of reputable planning firms will find that many quickly disappear. For instance, Madoff used a tiny accounting firm with a handful of employees—a setup some advisors compare to hiring Moe, Larry and Curly—to audit the billions of dollars he allegedly managed. Implausible? Of course. Still, clients didn't do that level of due diligence. Similarly, the rates of return (almost always 1% per month) were large and, let's face it, eerily predictable. But clients were too content to ask questions.

Still, many veteran advisors urge their peers not to wait until clients—or potential clients—ask those questions. "Trust has been damaged, even among those people who weren't directly affected by the Madoff affair," says Judy Lau, founder of Lau Associates in Wilmington, Del. "When you hear stories like this, it's a bit like being betrayed in a relationship. How do people ever rebuild trust?"

Lau is already seeing some of this, in the shape of new or potential clients who, she says, "peek around the door angry, frustrated and scared by all that has happened over the last year. They're obviously wondering if they really want to step across the threshold." In some cases, Lau says, there isn't much she can do. "I can't help anyone who isn't ready to even sit down and talk about all that has happened in their world, how they feel about, what they have left and how they feel about what to do next."

With the others, good communication about her model and approach is the answer, Lau says. "Whenever I sit down with a client, I'm making it clear that this is a relationship that spans everything in their life, and that while their investments are important, they're not always the primary thing." She also makes it clear that she has no cookie-cutter investment products of her own into which she siphons clients' funds. "That helps them understand that I'm here to help them with all their financial affairs, not just to get a fee for managing their assets."

Transparency—always a hallmark of topnotch financial planners—becomes increasingly vital now too. If you want to keep your business model or investment approach a trade secret, be prepared to lose clients, veteran advisors agree.

"You have to be ready to tell clients how your business works," Millay says. "If you have your own broker-dealer firm, be prepared to lay out exactly—and in detail—what controls and firewalls are in place. Clients need that kind of explanation because they know that was a problem with Madoff."