Asking About Your Assets

By Anthony Glomski
AdviceIQ.

So you sold your technology startup or enjoyed some other event that produced a lot of liquid assets (cash). Now you’ve got excess money to put to work or just enjoy, and engage a financial advisor to help you. But how do you keep your money safe? By asking your advisor some hard questions up front.

The meltdown of 2008 taught us to cautiously question the safety and security of our money, whether investing in stocks, funds or our own business. “It’s only when the tide goes out you know who’s swimming naked,” said investing guru Warren Buffet.

Positive cash flows into investments and rising asset prices lull us naked swimmers when the market is high or rising. The tide must eventually go out; the market doesn’t rise indefinitely. That’s when you likely discover who’s been handling investor money dishonestly.

Most infamously, Bernie Madoff’s Ponzi scheme — revealed during the economic crisis — defrauded thousands of unsuspecting investors out of as much as $60 billion. Madoff received 150 years in prison, the maximum sentence allowed. Although the largest Ponzi scheme in history (promising big payoff for little risk), it was only one of many exposed during the Wall Street meltdown.

And if you’re in the middle of a once-in-a-lifetime liquidity windfall, protecting your money becomes even more important. Ask your advisor:

1. Do you have custody of my assets? Custody implies control. Your advisor may maintain discretionary authority to direct investments. For necessary protection, arrange for a third-party custodian to hold your assets.
Why? Imagine you own a coffee shop. You hire hard-working and reliable staffers who every day serve hundreds of people. Do you the owner feel better if: The barista makes change out of her pocket; or cashiers input every order into the cash register before a cup of joe goes out the door? In this example, the cash register acts as custodian: an independent depository and accounting system with safeguards that protect you.

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