Do You Know Where Your Money Is?

By John Wasik –

When dealing with an investment adviser, where your money is kept is nearly as important as how it’s invested.

The question “who has custody of my funds?” should be an essential part of how you vet a financial planner, money manager or broker.

If your funds aren’t held in a separate account — not controlled by your adviser — then you’re asking for trouble. Just ask Bernie Madoff”s former clients or any of the thousands scammed in recent years by advisers who had easy access to client cash.

Long late to the game, the U.S. Securities and Exchange Commission (SEC) recently issued an alert on the custody issue. They apparently discovered that some broker/advisers aren’t following their rules on keeping client money in a safer place.

The agency did a recent wave of exams to see how advisers were treating client’s funds. Although the agency wasn’t specific on what it found, they had several reasons to be concerned. This is what they discovered:

Failure to recognize that they [advisers] have custody, such as situations where the adviser serves as trustee, is authorized to write or sign checks for clients, or is authorized to make withdrawals from a client’s account as part of bill-paying services.

Failure to meet the custody rule’s surprise examination requirements.

Failure to satisfy the custody rule’s qualified custodian requirements, for instance, by commingling client, proprietary, and employee assets in a single account, or by lacking a reasonable basis to believe that a qualified custodian is sending quarterly account statements to the client.

“Because the safeguarding of assets is central to investor protection, it is critical that investment advisers follow our rules when they maintain custody of their clients’ funds,” said SEC Chairman Elisse B. Walter.

It’s unlikely that the SEC will act as a cop on the beat when policing these issues, so you need to ask some questions:

1) Where is my money held? If the adviser says “in a discretionary account,” that’s the wrong answer. It should be held by an independent custodian/trustee such as a bank.

2) Who has access to my money? The access should be limited to you and your adviser when making trades or purchases, but only with specific permission.


3) How is my money protected? Typically, broker-dealers are covered by the Securities Investor Protection Corporation, which provides limited coverage. Know the limits of this coverage and understand your options in case your broker fleeces your account.

We can only hope that the agency will remain focused on investor protection when — and if — former prosecutor Mary Jo White is confirmed as the new SEC chief. The agency has improved in recent years, but still is a long way from being an effective deterrent against investment fraud.  In the interim, you’re the best cop on the beat.

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Nancy Benson

Dear Sir: I also am so frustrated that we did not get Obama out of office last November. We learned of the states that fraud was committed and that the election was stolen by Obama, and we are protesting, but who is hearing our protests and who is doing something about it? I am just one elderly person and am doing all I can, but have prayed that God would expose the enemy and that a move to impeach would come forth, or at least repeal Obamacare, or Obama would be exposed as a non-citizen and all he has done against us would be revoked and repealed (including his huge amounts of regulations) But nothing is happening (we know all the corruption and moves by our government to oppress businesses and people who are just trying to get by and create jobs etc. has not produced any way to correct… Read more »

Terry O

It is so comforting to read your comments Frank. Comforting to discover that there remain a remnant of like-minded America-loving people. I often find myself saying (to myself), “ I the only one who sees the insanity of the current course of our nation?”
I am truly baffled. We spend more on education than many others in the world….. where’s the sense????

Thank you for your comments.


You have chosen not to post my comment…..I rest my case


Does it really matter anymore? This country elected a President who never ran a lemonade stand! Then after 4 years of fiscal insanity and virtual economic disaster they opted to give him 4 more years to finish the job. It staggers the mind to contemplate that they turned away Romney; a man with a “proven” record of fiscal and business expertise; a man who has been recognized world wide as such!

I love this country – more than my own life. I put on a uniform to defend it. But the land I opened my eyes to when the doctor slapped me on the butt is no more. What aches in my heart however, there are “educated” people who in the face of undeniable proof of incompetence and corruption continue to support this President and his “henchmen”.


WE have no money just notes and credit, the notes we have in our pockets are only worth .03 cents,, don’t add postage Ha Ha


I have most of my investments with Etrade Financial. Are they safe?


A good basic article on some of the issues investors should be aware of, but of course it’s only a small subset of the knowledge an investor should have prior to opening an investment account. There is much more information the typical retail investor should have in order to make intelligent, well-informed decisions about where and how to invest one’s money above and beyond simple custody issues. Can I suggest that AMAC consider doing a series of these type of articles as an educational series for its readers? I think many of your readers would probably find them useful. Just a thought.


I don’t like anyone or anything standing between me and direct access to my assets. I don’t see any point in anyone collecting a profit from managing or holding my profits. I want to be able to walk up to a bank and withdraw funds, if that’s my choice. Silver and gold are great….but not if someone or something is holding them for me and I have a certificate to prove that it’s mine. (that’s a disaster waiting to happen, if there’s a run on that silver and gold in custodial accounts). I’m willing to pay someone for advice about investment, saving, and retirement decisions, but not to do them or hold them for me. Call me paranoid….I call it lessons we all should’ve learn from Enron’s collapse, the Madoff meltdown and a myriad of other financial calamities.