The news that Bernard Madoff may have stolen $50 billion from his clients puts an exclamation point on a tragic year for the finance industry. It’s one thing to make stupid subprime investmentments, as much of Wall Street and some of the banks have done, but it's another ball game when an individual outright steals people’s money. That is bottom of the barrel stuff, especially when so much of the money belonged to foundations whose aim it is to help those less fortunate.
There are many parts of the Madoff story that just defy credulity. He seemed to operate in the cracks of all of the various regulatory bodies.
One part of his operating procedures that we faced some years ago is that of being both a money manager, and the custodian of the assets. As a custodial investment manager, Madoff not only managed his client’s assets, but he also had direct access to the assets. To us that seemed like a lot of added risk and expense. Thus we chose to be a non-custodial manager. As most of you know, TD Ameritrade is our custodian. They hold the assets and make the trades. Our clients sign what is known as a limited trading authority that allows us to manage their accounts and collect our fees.
While being a custodial investment manager has some advantages for clients, such as more flexibility in moving money, the added risks, regulations, and capital costs that we would have had to incur to become a custodian manager outweighed the conveniences.
The only real encumbrance that we have to deal with as a non-custodial manager is that, since we have no direct access to our clients’ funds, TD Ameritrade requires a little more paperwork to authorize moving money around.
As the years have gone by, however, with faxes and email, this has gotten a lot easier, and knowing that we have a very capable custodian partner like TD Ameritrade gives us confidence that no money ever leaves an account that does not have the consent of the client and corroborating paperwork. I can tell you that having TD Ameritrade on board is a comfort to me, and I hope after the Madoff scandal, it is a comfort to our hundreds of clients spread across 29 states.
2 comments:
Bravo,
I salute your decisions and your obvious integrity. I feel you recognized the inherent conflict of interest and addressed it at the outset.
I wish more in the financial and political fields operated by your philosophy.
Madoff is the exact opposite of the corollary that brought Joe Kennedy to head the SEC initially. For Joe, it was "the man who breaks the rule will make the rules"...sadly Madoff is the man who made the rules, breaking the rules. Know all the systems' weaknesses made it much easier for him to stay under the radar for soooo long.
Maybe instead of prison, he should be in charge of the SEC... At least then, if the SEC can't get governmental funding, they'll have someone who can get it somehow...
Speaking of which, can anyone tell me why the SEC can't be a self funding branch like the Postal Service? Certainly there are enough things they can charge money for---and if their enforcement division was incented with a finders bonus, maybe the govt. salary would be less important. Radical, I know, but is it not a cruel joke that government agencies and SRO's that protect capitalism sadly lack competition, meritocracy, or a drive for excellence?
People like Madoff can only thrive when people become lazy. When the VIX was single digits 18-24 month's ago, it was the pinnacle of complacency. Nothing will shock me at this point.
Bush and Cheney could have been controlling their blind trusts and I wouldn't be surprised.......
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