Transcripts

"Money File"-The Hunt For A Money Manager

SUZANNE PRATT: In the "Money File" tonight, finding a trustworthy money manager. Here's Jason Zweig, personal finance columnist at the "Wall Street Journal."

JASON ZWEIG, "WALL STREET JOURNAL": With legendary trader Bernard Madoff accused of making off with up to $50 billion of his clients' money, how can you protect yourself from getting victimized by an unscrupulous investment manager? First, never invest based on word of mouth alone. No matter how much you trust the person who recommends a money manager, you still have to do your homework. Start by requesting the investment advisors form ADV. Read it carefully, looking for legal or regulatory problems and possible conflicts of interest, like a firm that trades for its account as well as on behalf of clients like you. Ask to see at least 10 years worth of investment performance and make sure those returns are real, not just a hypothetical look at how well the firm might have done if it had invested a certain way. Then check whether the returns have been adjusted for the fees you would have paid and ask how much would have been left after taxes. Be sure the returns have been audited by an accounting firm you have heard of. The assets should also be held for safekeeping, or custody, by a major bank. Finally, there is something fishy about returns that are either very high -- say, 3 to 5 percent better than the stock market -- or very smooth, with almost no losses along the way. If you hire a magician instead of a money manager, you're the one who may end up getting sawed in half. As the old saying goes, first investigate, then invest. I'm Jason Zweig.