Transparency, along with the fiduciary duty to always do what is in a client’s best interest, is an essential component of one’s investment portfolio.
Being in Walnut Creek (Northern California), the headline below caught my eye since San Ramon is about 15 miles down the road. There are stories like this one every day across the country and it is sad because, oftentimes, the victims are elderly and/or naïve and trusting. Of course, greed can be an inducement to make questionable investments, especially when the investment sales person is smooth and convincing.
San Ramon man pleads guilty to defrauding investors of $1.6 million
- First, make sure you are using a reputable advisor. Investors may go to the FINRA website to investigate brokers they are thinking of hiring and find out if they have ever been in trouble. FINRA stands for Financial Industry Regulatory Authority and there are over 635,000 brokers under their supervision. Poking around the FINRA website will be very educational for any investor. Investors may also go to the Securities & Exchange Commission website and investigate financial advisors they may be interviewing. Financial Advisors who are required to register with the SEC or the state in which they work will have filed Form ADV as part of their registration application. Here is a link to the SEC’s Investment Advisor Search website.
- Once a broker or advisor are vetted and hired, and the investor has a complete Investment Policy Statement to provide a blueprint for the advisor and an understanding of who does what, the investment portfolio will be built. Transparency is achieved by knowing who all the participants are in ones investment portfolio.
- Those participants used by my firm include a legitimate mutual fund company to manage individual funds in which a client’s monies are invested such as Dimensional Fund Advisors, Vanguard or others; a custodian to provide reporting of all the client’s holdings (individual mutual funds) such as Charles Schwab, Fidelity or TD Ameritrade; and a service organization outside our firm (BAM Advisor Services in St. Louis in our case) for more comprehensive reporting on a quarterly basis – branded with our logo, etc. Such firms pull data directly from the custodian and provide the advisor a portal and “dash-board” to look up client’s accounts and initiate any appropriate trades. I say initiate because it is our service organization that actually executes the trades directly with the custodian.
With all these entities involved, an individual investor has the ability to confirm everything the advisor is telling them about their portfolio. Our quarterly reports match the custodian’s numbers to the penny. There is a direct relationship between the client and support company which is part of the paperwork the client will have signed. And, our clients may go online directly to the custodian and see their investment portfolio at any time they like.
Transparency is so important. It is the insurance policy investors have against fraudulent “advisors” who would otherwise take advantage of them. For my partners and me, transparency is such an obvious component of the investment experience, along with the fiduciary duty we have to our clients, that stories like the one in the headline above just make us sad that there are still folks out there who are able to defraud the unsuspecting and naïve people.