Protecting Your Investments
Attorney
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The Bernie Madoff news becomes more confounding each day. Who will we find out tomorrow knew about the scheme but didn't investigate or ask questions?
A number of years ago, I belonged to a very active internet based stock club. The stock that was all the rage at the time was Enron. Everyone owned it; or wanted to own it. I never did. Why? Because I read the 10k statements and couldn't , for the life of me, understand how thay made their money. Allegedly, they earned their money trading in energy futures and the like; but I didn't understand it. So, I told my club members that if I couldn't understand how the company made money, I wouldn't invest in the stock. They all thought I was crazy. You know the rest of the story.
Why is this important? How much do you know about your own investments or the investment philosophy of the person managing your money. Do you trust someone because they're a member of a local social club, your local church or synagogue, or the gym? Ask the members of the Jewish charitable organizations that have been destroyed by Mr. Madoff how they feel about the "trust" factor today. In fact, there was an excellent piece in the Wall Street Journal today discussing how the worst and often most successful con men are often those that take advantage of those within their religious, ethnic or social hierarchy because they are trusted the most.
When you ultimately meet the potential adviser, you might want to consider asking the following questions:
a) What is their investment philosphy? How do they determine appropriate portfolio allocations for their clients;
b) Where do they get their research? Do they rely on their own company research, or do they use independant research sources. There are many fine independant research companies out there.
c) Do they specialize in mutual funds, individual equities, or both? If the adviser works for a company, such as Ameriprise, do they only sell Ameriprise funds or do they offer a basket of funds from many companies?
d) If they sell annuities, MAKE SURE they are explained to you in detail. Many annuities are often sold that are far better investments for the broker than for the client. We have litigated a number of these cases.
e) In advance of a client meeting, I often ask for a sample portfolio for a client in the same age bracket with the same amount of investment funds available, i.e a 55 year old woman coming off of a divorce with 1 million in assets. This helps me evaluate many of the above factors before a meeting.
f) The above information also helps you understand the nature of your investments and can help you sleep at night. Know where your money is and how is it invested! Is it consistent with your risk tolerance?
The Wall Street Journal has reported that other financial managers had warned the SEC about the Madoff Ponzi Scheme years ago. But...he was trusted by too many that should not have trusted him at all. If you know where and how your money is invested, you may well avoid the destruction experienced by the ever growing list of Madoff victims.