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
8 years ago

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 this mess we are in) We need God’s help. I will keep praying.


Terry O
8 years ago

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.

8 years ago
Reply to  Terry O

We may spend more on education than a lot of countries, but the money isn’t spent well. Far too much of it is wasted on bloated salaries, benefits, unnecessary layers of administration and excessive regulations at all levels. All of it designed to ensure the continuation of the present educational system, as opposed to teaching our children to be intelligent, independent thinkers capable of understanding and appreciating data and reason.

Throwing money at an issue is rarely ever the answer to a problem. That is however the first default action of the progressives (socialists), who refuse to recognize the underlying cause for many society’s problems. When test scores don’t improve or graduation rates decline, the only thing the socialists can think to do is throw even more money at the problem and keep doing so in the hope that somehow, something will improve and they will be proven right.

8 years ago

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

8 years ago

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”.

8 years ago
Reply to  Frank


8 years ago
Reply to  Frank

Yes Frank, the fact that the people had four whole years to see what an utter disaster Obama was, but still decided to give him another four to finish the job speaks volumes to how far the country has fallen intellectually. Especially when there was a clear contrast available.

As to the “educated people” who chose Obama, don’t confuse a formal education with wisdom or the ability to act rationally. Critical thinking skills are pretty much dead in at least half the population at this point. Much of the so-called education offered today consists mainly of well-crafted leftist propaganda, especially in the areas of economics and history. That’s why they can’t recognize the obvious incompetence and lies being fed them on a daily basis.

8 years ago
Reply to  Frank

I like your comments, Frank. I think the ‘47%’ safely delivered into Obama’s hands his second term.
The American people don’t respond well to the truth and this is no exception. Obama has turned this country into one big giveaway program. He hasn’t a clue as how to fix our budget crisis except to spend more and more money into failed attempts to put America back to work. 2013 may seem to be on the road to recovery but come January 1 2014 when Obamacare kicks in will cause a major relapse in job creation and recovery. Business has gotten to regard people as liabilities and when they see what it will cost per body next year, CHA-CHING, ‘…. and out the door I went’.

Notice how the stock market when yet another wave of workers hits the street. The initial impact is to send the stock price upward.

I think Obama has mastered the sport of identifying his supporters such as illegals, liberals, welfare recipients, in other words, people who do nothing and expect everything for free. After all he’s not stupid having graduated from Harvard ( along with wife, Michelle). His execution of the passage of Obamacard was cleverly done outside of the exceptional processes. He made a mockery of Congress. He is also dealing expertly with the budget ‘crisis’ by doing nothing and making the Republicans the fall guys until they come begging to him to cooperate in solving it. He has nothing to lose, the first time a ‘lame-duck’ president has increased his power substantialy in his second term.

For all intents and purposes, the Republican party is dead. All they can do is fillibuster, issue personal attacks, and piss and moan. The truth is, people don’t want the same old rhetoric. Its nice to be against abortiion but that is not what the people want. As important as that is, they want a jump-started economy which will put them back to work.
The economy has so devastated the Middle class that there’s a chance that many of these people may not find work at all, they’ve been out of work for so long and have ‘aged-out’ of the potential labor market.

8 years ago

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

8 years ago

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

8 years ago

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.

8 years ago

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.

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