In this 1 minute video below, Sustainvest’s founder Dale Wannen wanted to clarify what it is to be an independent investment advisor versus a non-indy. Lets start with old Bernie Madoff as his story always ranks high in all of our Netlix Top 10’s. As most of us know, Bernie Madoff was the infamous ponzi guy who stole up to $65 billion dollars. He was literally printing up fake statements and sending them to his clients. Wealthy clients who trusted their wealthier friends said “this guy is great, you should see my quarterly returns!”. Well, those returns weren’t there!
Bernie was an investment advisor BUT he was also something called the custodian or broker/dealer. There was no third party brokerage firm to verify things. How could thousands of clients not questioned if there was a 3rd party verifying this data!? In the attached video, I included an actual trade statement from Madoff Securities to show how his name shows up both at the top of the page as the advisor and also at the bottom of the page as the broker/dealer who handles the trades. This is really the easiest way to see if your advisor is either independent or handling both aspects of investing. Here at Sustainvest we use Charles Schwab as our 3rd party custodian. They are the ones holding or “custodying” the assets. They send monthly statements. We send quarterly statements (via Morningstar). So when we send our quarterly statements to clients they match Charles Schwab’s numbers. If they don’t that’s a problem. It’s called reconciling and for us, as a fiduciary independent advisor, it’s the right way to do business. Bernie didn’t do that and there are a host of other advisors who are not independent (think Morgan Stanley or Merrill Lynch). This is why for all those years, clients of Madoff, thought all was fine, until it wasn’t and his duped clients were left holding a brokerage statement that was as informative as the latest People magazine.
Next time you sit with your advisor ask them if they are independent. Ask them “are you acting as both the investment advisor AND the custodian/broker-dealer”? If they say yes, well, they aren’t independent and you may want to question their balance sheets. You have every right to. It is important for you to know this as your hard earned dollars are being investing. Please watch this 1 minute summary below for a quick review on the topic.