If I'm an investor with accounts at Merrill Lynch, Citi-Smith Barney, AG Edwards, or a bunch of others, I'm probably a little annoyed at these big firms. It's interesting that what appeared to be strength was more so expert marketing. After all, these guys have been around forever, right? They're not going anywhere.. right? RIGHT?
Well, the good news is that even if they do, and if you have less than $500,000 invested or $100,000 in cash, the odds are that your account will be just fine. If you hold more than these amounts in your accounts, you should understand the importance of the selection of your custodial bank.
When it comes to your investment accounts and working with an advisor, there are two concepts that are VERY IMPORTANT to understand. The first is the idea of CUSTODY, and the second is related to investment management.
When you work with a broker/dealer (Merrill Lynch, Citi, UBS, etc) they will almost always have custody of your investments. When you work with an independent firm, like DeMoss Capital, the firm will typically work with one or more custodians. In our case, it's Charles Schwab, the largest institutional custodian in the US. In regards to the safety of your account, the firm that has custody of your investments is the one you should feel good about. Aside from that, and equally important, your decision for an advisor should be driven primarily BY THAT PERSON. NOT BY THE FIRM.
There is no way that someone can be qualified to look after your investments simply by working for a large firm. There is a reason that there are good brokers and bad brokers, and sometimes they sit right next to each other at a big name firm. These differences are in the individuals looking after you, not differences in the firm.
The truth is that you can open an e-trade account and buy investments that are just as "high quality" as any individual company might offer. So WHAT IS IT that you should expect from your financial advisor and his or her choice of custodian?
#1 You should feel good about the custodial bank that your advisor uses, especially if your accounts are above $500,000 or have more than $100,000 in cash.
#2 You should expect your advisor to understand your personal goals and circumstances.
#3 You should expect your advisor to have an open ear, to be competent, and be willing to explain when you have questions.
#4 You should expect your advisor to be objective in his/her advice. This means having as few conflicts of interest as possible, and telling you about those that are present. One major conflict of interest is the way in which advisors are compensated. Talk to your advisor about fee-only services.
#5 You should expect your advisor to meet with you fairly regularly so he/she can be apprised of any changes in your circumstances, and to give you peace of mind about your investment plan.
In conclusion, you have 3 moving pieces: The custodial bank, the client, and the investment advisor. The advisor should be an ethical and competent individual (because the employing firm CANNOT compensate for that). The client and advisor MUST have a relationship for appropriate management, and the custodial bank for your assets should be one that is strong. At DeMoss Capital, these are our mandates. Competence. Truth. Transparency.
If you have any questions, please feel free to call me. I'll gladly point you in the right direction, or help you if you so choose. If you'd like, you can call (423) 756-4800 and ask for me, John DeMoss.