Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Simple steps for investor protection

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Today, right now, send your stockbroker or mutual fund salesman a letter asking if your account is handled by a fiduciary and in what capacity.  I’ll wait right here for you to return, but I won’t wait for an answer from your salesman.  I’ll bet I know the answer.  


If you work with an “investment advisor” they are a fiduciary to you. They must always act in your best interests and describe when they are not. Period. Full stop. End of story.  Any other investment relationship less than fiduciary is ripe with conflicts of interest. 

A good example is buying a mutual fund.  The mutual fund itself is an investment company that has a pool of assets. Who manages those assets?  An investment advisor to that investment company. There is a fiduciary relationship between those two.  How does that investment company gain assets?  Typically through a sales effort with the public.  The salesmen who sell those mutual funds and collect commissions typically are NOT a fiduciary to their clients.   Good, bad, right, or wrong, I won’t say.  But Wall Street is set up for investor protection for itself, but not necessarily for you, unless you demand it. 

Ask your advisor in writing for a response in writing. 


Next important point: where is the money? Literally.  Where is your account held?  Many brokers are “introducing brokers.” You may go in to visit and discuss investments with your broker at his local office, but your actual account may be held at a third party.  This is very common.  You must be aware of the financial health of the firm that actually has your account.  Is it insured? To what amount?  Is there supplemental, private insurance above and beyond SIPC?

Key in on, “Who creates the statements of the account?” If an investment broker has access to your money AND creates the statements themselves, that is a recipe for trouble.  There should be more safeguards for your money and distinct segregations of advice and access to the account. 

For instance, (if you’ll permit a brief commercial) most of my clients’ accounts are held at TD Ameritrade.  I have strictly limited access to the accounts; basically I can place trades for the accounts and instruct Ameritrade to send the clients themselves a disbursement check directly from the account.  TD Ameritrade takes care of everything else.  They send the statements. They send the confirmations.  They take the transfers-in. They handle the securities & checks.  They handle settlements. They send out third party checks.  They change the address on the account.  These distinct segregations of duties protects clients. The custodians take care of the money, which permits me to focus on trading, performance, and talking with clients.

The client owns the account directly. I trade for the client.  Simple. Everyone knows where everything is and in what amounts, so we can all see how the account is doing.


Written by heyercapital

May 22, 2009 at 7:35 am

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