Thoughts on Asset Safety

It seems that every day we hear news of a new financial scandal or another weakened institution. No doubt, these are scary times. It is one thing to commit to a long term investment plan and be willing to withstand the ups and downs of the stock market and business cycles. It is another thing entirely to question the existence of your money and the honesty of the institutions that hold it.


Let me say up front that our firm had no direct or indirect exposure to Madoff or Stanford, or any other fraud currently being investigated.


In an effort to help you understand what controls and protections are in place, below is a brief recap of how your funds are protected from fraud and mismanagement.


TD Ameritrade

Most liquid assets (stock, bonds and mutual funds) that we manage are custodied at TD Ameritrade, This arrangement is in place specifically to protect you. We are required by the SEC to custody your assets at an independent, qualified custodian. Your statements from TD Ameritrade served as independent verification that the accounts we manage on your behalf are titled properly and reconciled with our own reports.


TD Ameritrade is a conservatively run company that has not strayed from their core business and therefore has emerged as a strong leader in the current environment. In addition, your assets are protected by SIPC insurance ( which covers up to $500,000 in the event that TD America fails (a very unlikely event). TD Ameritrade also provides additional coverage under private insurance agreements.


Limited Partnerships – Hatteras and Gerber Taylor

Depending on the client relationship, some investment assets may be held in the form of limited partnerships. As we do not have direct oversight or complete transparency into these investments, they require a different level of due diligence and risk management to ensure that your assets are protected.


To achieve the desired level of protection, we tend to rely on fund-of-funds – partnerships that invest in other partnerships. By leveraging our fund-of-funds relationships, we get access to a level of diversification, research, due diligence, and risk management that would not otherwise be available investing directly with individual managers.


We work closely with several firms with which we have a high degree of confidence. This confidence is built on an understanding of their processes and culture, and their historical ability to avoid frauds and errors.


Banking Relationships – Trust One, First Tennessee, Pictet

For some clients, we have helped establish certain banking relationships. The reasons have ranged from obtaining FDIC insurance protection on large cash balances, asset protection, diversification, or simplification. In each case, we try to select the best institution to meet our client's goal, and while we can't completely vouch for the underlying health of each bank with which we do business, we do try to understand the protections that are in place to safeguard client assets.


Cash Management

Across all of our custodial relationships cash management is critical. To guard against fraudulent transactions and errors, we use wire transfers when possible. If not, checks are sent directly to clients’ homes and never to our offices or third parties. All our accounts are monitored and reconciled daily with strict checks and balances to ensure accuracy and catch problems.



In addition to the above mentioned structural controls, every investment decision we make has to have a foundation of common sense and economic reality. It it's too good to be true, it probably is.


While we can’t guarantee protection against every risk, I can assure you of two things:

  • We will always put the needs of clients first, and
  • We invest our funds exactly as we invest yours.


Posted by Jay Healy at 8:38 AM
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