Where You Invest Your Assets Matters — Here’s Why

Wall Street is notoriously known for its reckless sales culture. Just look at their reports on the BrokerCheck website: Type a famous brokerage firm name and you’ll get hundreds of thousands of listings of specific broker transgressions, fines, and examples where customers received arbitration awards after various kinds of financial abuse. And yet, so many consumers still prefer to keep their assets at these large Wall Street firms.

Why not pick a smaller financial planning firm that provides customized service and has renounced predatory sales activities and commissions? Because people feel safer keeping their assets at a large firm that they’ve heard of — but this is a false comfort. Their funds may actually be safer with the smaller planning office than with the larger multinational firm that buys Super Bowl advertisements. So, why is this?

Safekeeper of Assets and Securities: The Role of Custodians in Financial Services

Because of the strict regulations the U.S. financial system imposes, financial planning firms and investment advisory offices must protect client assets with a custodian.

That means that the actual investments and money are not housed in the advisory firm’s basement or computer system; instead, they’re housed at a large financial firm whose only purpose is to safeguard the money, keep close track of it, and provide statements directly to clients.

The largest and most commonly used custodians are Bank of NY/Mellon/Pershing, TD Ameritrade Institutional, Charles Schwab & Co., and Fidelity, each of which has between $500 billion and $1.5 trillion in advisor assets under custody.

Having custody at one of these institutions is a very strong check-and-balance. And smaller financial planning offices embrace and support custodians: The planning or advisory firm doesn’t ever have direct access to your money, and therefore would be unable to take it out, steal it, or misplace it.

In contrast with the large Wall Street firms that are frequently accused of defrauding customers and are routinely in the news for regulatory fines, institutional custodians — famous or infamous, large or small — maintain diligent best practices when safeguarding their clients’ money.

Small Financial Planning Firm vs. Wall Street Firm — Which Is Safer?

Does that mean you’re safe no matter who you work with? No. The Bernie Madoff Ponzi scheme looked legitimate but managed to evade this important check-and-balance by having a small company controlled by Bernie himself serve as the custodian. The large Wall Street firms also serve as their own custodians.

Your safest option is to work with a financial planner or a fiduciary investment advisor who has a custodial relationship with a well-established institutional custodian. You also want to periodically check the statements the custodian sends to ensure they match your advisor statements. If you want better service and peace of mind regarding your assets’ safety, please feel free to contact us — we would be honored to help you make the decision that’s best for you.

Stay Diversified, Stay YOUR Course!

Empyrion Wealth Management (“Empyrion”) is an investment advisor registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. Information pertaining to Empyrion’s advisory operations, services and fees is set forth in Empyrion’s current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Empyrion. The information contained in any third-party resource cited herein is not owned or controlled by Empyrion, and Empyrion does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Empyrion of the third party or any of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner or investment advisor.