How Safe is My Money? 3 Questions to Ask Your Advisor

How Safe is My Money? 3 Questions to Ask Your Advisor

Being skeptical isn’t necessarily a bad thing. Because when it comes to preserving your money, there’s no alternative to trust and responsibility! Before you hand over an account to a Wealth Advisor, find out how they’ll work to keep your money safe.

Published by Motley Fool Wealth Management Originally posted on Wed, Jun 21, 2023 Last updated on January 9, 2024

read time 5 min read

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Do you worry that your money is not safe when you hire a Wealth Advisor? A colleague’s story indicates you’re not alone. Here’s her story:

While wearing a “Fool” cap on vacation, a stranger approached curiously, asking her why she was wearing a hat emblazoned with the word “Fool” on it. When she mentioned that she works for Motley Fool Wealth Management, the man frowned and declared, “I don’t trust any investment person with my money. All they will do is steal it like Bernie Madoff did.”

This fear is not unique. So how can you feel more comfortable giving your money to a Wealth Advisor? We think answers to these three questions can help.

3 Questions to Ask Your Wealth Advisor About the Safety of Your Money

 1. Do you take possession of my money?

This question is at the heart of the Madoff scheme. Because not only did his firm provide investment management, but he also placed his clients’ assets with his own custodian. That kind of setup is akin to a company acting as its own auditor—there was oversight and separation in name only. What does that mean specifically in wealth management?

A custodian is a financial institution that holds clients’ cash and acts as an intermediary. A custodian’s primary responsibilities are for the safekeeping of your assets, processing investment trades, and servicing your accounts. Custodians segregate your assets to protect you if your Wealth Advisor or the custodian itself files for bankruptcy or becomes insolvent. In the case of Madoff, the investment manager and custodian were, in essence, one and the same.

Many, but not all, registered investment advisors use an independent firm as their custodian. This means they don’t take actual possession of your money. The investment manager may have the discretion to buy or sell securities and in what quantity for your account, but the custodian holds the assets. So, you still maintain direct control over opening and closing the account and transferring funds into or out of the account.

At Motley Fool Wealth Management, we are a registered investment advisor. We use Charles Schwab and Interactive Brokers as custodians to house and protect our clients’ assets. These custodians are independent and have no affiliation with Motley Fool Wealth Management, providing an extra layer of security. This should minimize the risk of theft, misappropriation, and misuse. In addition, these custodians have multiple security features and policies that safeguard our clients’ assets and personal information.

Sometimes clients wonder why they receive two quarterly reports for their Fool Wealth account—one that shows their account balance and transactions and another that explains what went on in the markets and their portfolio. The reason verifies this separation between where your money is held (the custodian) and who’s making the investment decisions (your portfolio managers). Since your custodian houses your account, you receive a quarterly statement directly from them. And because Motley Fool Wealth Management makes the decisions on what securities to buy or sell in your portfolio, you receive a quarterly commentary directly from us.

 2. What is your legal duty toward your clients?

Another distinction of registered-investment advisors is that they are legally bound by a fiduciary duty to act in the best interests of their clients.

Motley Fool Wealth Management has a fiduciary duty to all its clients. This means we are required to act in the best interests of our clients. We are also closely regulated by the Securities and Exchange Commission (SEC), and as the advisor on record, we do not have the ability to withdraw any funds from a client’s account without their written consent. As a fiduciary, Motley Fool Wealth Management puts you, the client, first and foremost.

3. How do you protect my information?

News of cyberattacks is jarring, and therefore cybersecurity is a top concern. Despite systems and policies to protect information and assets, there is no 100% guaranteed way to protect against cyber threats or other bad actors. But implementing certain precautions go a long way toward warning of potential threats or stopping attacks before any theft happens.

Common practices like password protection, data encryption, firewalls, and certain data storage procedures can help safeguard your information. In addition, securing accounts with multi-factor authentication adds another layer of protection.

Multi-factor authentication (MFA) is “a layered approach to securing data and applications where a system requires a user to present a combination of two or more credentials to verify a user’s identity for login.”1 One commonly used factor is a one-time password. This password is a 4-8 digit code that you receive via a phone call or text message. Without this code, you cannot log into your account. In a nutshell, it combines something you know, like your password, with something you have, like your phone. MFA helps validate that the person logging in is really you!

Another protection is having disaster recovery processes with redundant systems that are geographically dispersed and can aid in data recovery should an attack occur.

Systems to safeguard your money, while continuously evolving, need to work hand-in-hand with human behavior. In other words, help protect your personal information by keeping it private and safe. For example, we would never ask you to put sensitive personal information, such as your social security number or full account number, in the body or attachment of an email. In addition, if you are concerned or skeptical about the validity of a request, then call your Advisor or our client experience team and talk directly with them. In this digital era, it’s incumbent upon all of us to employ a healthy level of skepticism when sharing personal data.

Safeguarding your data is a top priority

It’s hard to know what’s real and what’s a scam these days. Take the numerous scam phone calls you receive daily—they sound so genuine and real. It’s so widespread and such a serious problem that the Federal Trade Commission felt the need to put out a notice called How to Avoid a Scam.

The notice recommends several steps to help you recognize and avoid a scam. One recommendation is to never give out personal information. We agree and think this quote aptly sums it up (with a dose of humor):

"Passwords are like underwear: don’t let people see it, change it very often, and you shouldn’t share it with strangers."2

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Footnotes, Jan 5, 2020

2Chris Pirillo, bluepencil, accessed May 30, 2023

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