Garrison Keillor talks about the mythical town of Lake Wobegon, where all the village children are “above average.” The financial industry is a little like those young children. Every section and company best think they are. Truthfully, each one offers certain structural strengths. Experience suggests that clients often reach decisions by default – the company where an advisor works, for example, or a bank or investment company near to home.
These are understandable options, but an informed way to choose hardly. An objective consultant may likely look at a whole matrix of factors including safety, convenience, flexibility, financial expertise, investment expertise, simple evaluation, and overall costs of service. Security and Safety. One topic that commands attention is client safety. Virtually every investment client should be concerned about the people and companies they use. Surprisingly, though, there is a lot of bad information concerning this general subject.
Perhaps we can shed some light. First, it’s important to recognize that different regulations apply to different kinds of firms (all declaring that they’re best and safest). Most brokerage firms fall under the scrutiny of the Securities and Exchange Commission (SEC). So do many Registered Investment Advisors (RIA), although smaller RIAs are included in state rules (In Missouri, RIAs are governed by the Secretary of State Securities Division).
Most investment professionals are required to complete examinations conducted by the National Association of Securities Dealers (NASD), a self-regulatory body of the investment industry. Various examinations apply to different kinds of securities, but virtually everyone selling or managing investments in our industry is required to pass at least one examination. Passing isn’t always enough – in Missouri, one qualifying officer of the RIA firm must earn at least an 80% grade on the Series 65 exam.
Banks, as a rule, are governed by banking regulators. So, the trust division of a bank or investment company or 3rd party trust company is controlled by the Office of the Comptroller of the Currency (OCC) or condition banking division. Certain bank or investment company employees that sell investments – through a discount brokerage department, perhaps – must complete NASD exams, too. Surprisingly, I spent fifteen years as a trust officer for three different banking institutions and never needed to pass any securities examinations.
Banks were specifically exempted from most securities laws and regulations because they fall under banking statutes instead. Both banking and investment firms are required to meet certain capital, insurance, and bonding recommendations. Many investment firms are also registered with America Department of Labor (DOL) to control pension and other pension plans.
- Even if Buffett doesn’t want to lever up BRK, we can do it ourselves at very attractive rates
- Appropriate information system
- Self-confidence and the ability to make difficult decisions
- The curve has steepened from -5 on 5/9 To +2 today
- The capital is secured
- 100 shares @ $10 per share = $1,000
- Boost your property’s curb charm
- The right to sell our assets
The DOL provides oversight for pension plans and advisors must sign-up to comply. Special bonding is required for each retirement plan, both for the company and investment advisors. Registered Investment Advisors actively manages client investments. A Federal law requires separate custodial accounts for every client. Each custodian brings another degree of protection.
100 million. Other custodians provide similar insurance. Remember, custodial accounts are where client investments are actually kept, which means this safety is important extremely. Other types of protection are covered through bonding or insurance. The best investment companies or advisors carry professional liability insurance as protection against claims of error or negligence. Split coverage should drive back worker fraud or dishonesty. Firms that handle retirement accounts must have special ERISA bonds.