The recent revelations of a $50 billion Ponzi scheme at Bernard Madoff Securities will have repercussions far and wide across Wall Street, Main Street and obviously within the offices of regulators who were clearly asleep at the switch.

The Madoff scandal also points up some of the benefits of working through a large, well-known company like Vanguard.

But the greater lessons to be taken away from this situation are some of the classics that I have always preached and continue to live by. 

First, always understand the investment process and philosophy of the investment manager you work with. Very few of Madoff's clients actually understood what he was doing. If they had, they'd have known it could not possibly succeed.

Within Vanguard there is pretty good transparency as mandated by the regulations concerning mutual fund companies. But it isn't perfect.

I believe some of my research and unbiased questioning of things that many investors take for granted, though, leads to even greater transparency when it comes to your Vanguard investments — particularly my willingness to call a dog a dog when one of Vanguard's funds truly stinks — such as Diversified Equity (VDEQX), for instance, or Growth Equity (VGEQX), or when former Chairman Bogle would write to his "fellow" shareholders though he wasn't actually a shareholder in the fund, or when former CEO Brennan would wax on about stocks a particular fund held when it actually didn't, or at least not for the period he discussed, or — well, you get my point.

Second, there is no free lunch. The notion that someone could guarantee small, consistent returns month after month for years on end may have raised some eyebrows, but it apparently wasn't worrisome enough to keep investors from giving Madoff billions. If it seems too good to be true, it almost certainly is. Period.

Finally, the idea that hedge funds and funds-of-funds and high-net-worth investors are somehow more sophisticated or smarter about how they invest, or can generate higher returns for their clients…