Eye on stewardship

BOSTON – Unlike Bernie Madoff’s clients, mutual fund investors can see where their money goes and who’s running the show. Funds are regulated so you can’t be easily taken, like Madoff’s Ponzi scheme victims.

But if you’re like most investors, you don’t bother to check out disclosures that can tell a lot about whether your fund company truly has your interests at heart – like whether managers feel your pain by personally investing in their fund, or whether the fund’s board is truly independent or just a rubber stamp.

After the beating nearly all funds have taken, it’s an especially good time to try to determine whether your fund company is really on your side.

One good resource: The Securities and Exchange Commission posts fund disclosures at www.sec.gov/edgar/searchedgar/mutualsearch.htm.

Here are some more tips:

1. Check your mail. Review annual fund reports. If your fund’s blowup in the current slump was markedly worse than the beating its rivals took, does the fund fess up to it and explain what happened, or does it gloss things over? And do the managers discuss how they’ll avoid repeating mistakes?

2. Review disclosures. Documents called Additional Statements of Information that accompany fund prospectuses can look mind-numbing. But here you can find out how much a fund manager has personally invested in the fund. Managers who invest heavily in their own funds – commonly known as “eating their own cooking” – are generally considered to be more aligned with investors’ interests.

3. Consider fees. Funds are required to disclose how much they charge. While a higher fee can be merited if the fund is managed in a way that can generate a better return, that’s not always the case. Generally, the lower the fee the fund company charges, the better stewards they are.

4. Look at the record. Check SEC and fund company disclosures, and read media accounts to see whether the company has gotten in trouble with regulators. And does it seem to be more oriented toward attracting clients, or in managing your money for the long haul? For instance, a company that closes a large and popular fund to new investors often serves investors’ long-term interests at the expense of the company’s sales prospects. If the company fails to show it can play by the rules and protect shareholders, go elsewhere.

5. Find out who’s in charge. If the fund’s board is stacked with company insiders – especially the chairman – they may be less likely to act in your interests than independent members. Also, look for boards whose members invest in the funds they oversee.

6. Press your adviser. If you’re relying on an investment adviser to choose a fund, ask the adviser how well he or she has scrutinized the fund’s stewardship. Take their stewardship advice with a grain of salt if the adviser is receiving a commission from the company.