Over the past several years, the financial services industry has been plagued with fraud cases. From Ponzi schemes to embezzlement and fraud, investors have a lack of trust in the people in charge of their investments. When it comes to personal investments or smaller corporate investments, most people believe that their account are protected from the same illegal behaviors. Unfortunately, most investors do not take even the most basic steps to safeguard their money from fraudulent activities.
When the markets are doing well, it is easy to get distracted by a growing retirement account and forget that managing risk should be on the forefront of our investment planning. One of the single most important ways to protect your investments is to consider utilizing a third-party custodian. Unlike a broker, a third-party custodian is required to deliver reports that are separate from the holdings report provided by your investment advisor or corporate management.
This extra layer of protection creates a firewall between your money and your advisor. In essence, the custodian is the gatekeeper or watchdog for your account. The custodian is required to provide their client a quarterly statement detailing all account activity. This includes deposits, withdrawals, trades and any management fees that have been deducted. If an independent custodian suspects fraudulent activity of any kind, they can take the proper action, contacting the account holder and / or reporting the advisor to the appropriate regulators.