INDUSTRY INSIGHT
Wealth Management
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Investment Loss vs. Investor Loss
Market volatility is expected and so is protection from fraud
By Philip C. Henry
ypically, I write about important aspects of financial advisement
such as choosing the correct asset allocation, remaining invested
despite market ups and downs, development of retirement
income plans, and protecting your family with appropriate insurance
strategies. Let’s now turn our attention to a vitally important but often
overlooked aspect of financial planning: the custody of your assets.
Do you remember the topic of loss in December of 2008? While
investment loss due to market volatility (Sept. 2007 through March 2009
brought the second-worst bear market ever) dominated the headlines
to that point, it was investor loss due to Ponzi-scheme predators that
ruled thereafter. At that time, news of Bernie Madoff defrauding multibillions from investors rocked the financial world. That debacle was
followed shortly thereafter by mastermind billion-dollar scammer R.
Allen Stanford. Other schemes preceded these and others will follow.
The common denominators in most of these plots are two-fold:
(1) the promise of abnormally high, guaranteed returns
(2) the investor transferring monies to accounts that are not
independent custodians, aka, custodians that are independent from
the financial advisory firm.
Henry Wealth Management, LLC, along with the vast majority
of firms like ours, exclusively use independent custodians to hold
clients’ assets. These assets are invested according to an agreed-upon
financial strategy. While the financial advisor “directs traffic” so to
speak by ensuring that funds are properly invested, it is the custodian
and not the advisor who maintains physical possession of the assets,
provides timely and accurate statements of value and maintains tax
records.
We most commonly utilize TD Ameritrade, Trust Company of
America and NFS (a division of Fidelity), while other firms may
use similar-type and popular custodians like Charles Schwab and
Pershing (a division of Bank of New York-Mellon). These firms offer
certain protection through their membership with Securities Investor
T
Protection Corporation (SIPC). Client checks are made payable to
these firms and/or transfers are directed to them.
As a service to our clients, we provide monthly consolidated
reporting via password-protected emails, yet these reports are
generated via feeds from the aforementioned custodians and are
supported by actual quarterly statements sent directly from custodians.
In summary, there are times when we all must deal with issues
of market volatility; these can be times of positive gains or negative
losses. Yet ensuring that accounts are safeguarded from fraud is a
completely separate matter, one that credible advisors take very
seriously and which is a foundational building block to long-term,
trusting relationships.
Phil Henry, ChFC, CFS, is the president of Henry Wealth
Management, LLC, an independent financial services firm
located at 1370 Washington Pike, Bridgeville. He offers
securities and investment-advisory services through NFP
Securities, Inc., Member FINRA/SIPC. NFP Securities,
Inc. is not affiliated with Henry Wealth Management,
LLC. Phil may be reached at 412.838.0200 or through
email at Phil@HenryWealth.com. The firm’s website
is www.HenryWealth.com. The opinions expressed in
this commentary are those of the author and may not
necessarily reflect those held by NFP Securities, Inc. NFP Securities, Inc. is not
affiliated with any of the entities named in this piece.
South Fayette | Summer 2014 | icmags.com 45