But keeping our assets safe is just as important. Taking additional, needless risks with our hard-won gains makes no sense. Here we look at four ways you can minimize these risks.
Asset Custody
When you graduate from a saving account in a bank to investing with a fund or advisor, you can easily lose sight of where your assets are held. If you do not know who controls your assets, you are open to fraud or other unwelcome surprises in an unexpected event (such as a market crash).
When you entrust your portfolio to an intermediary, that intermediary will (or should) entrust your funds to a qualified third party custodian, whose primary role is to keep the funds safe for you.
The fraudster Bernie Madoff self-custodied his clients’ assets—he kept them under his own control. This enabled him to bankroll an illegal investment scheme without scrutiny for many years.
Besides fraud, customer funds can be at risk without their knowledge. Some broker-dealer custodians do not fully segregate consumer funds but use them as collateral for other trades. This puts funds at risk if the institution runs into trouble.
Ensuring that your funds are segregated and in the hands of a large and reputable custodian gives you peace of mind. You can also ascertain additional information such as whether, and up to what amount, your money (if kept as a deposit) is insured against loss (a legal obligation for custodians in many countries).
Identity Protection
Online transactions are convenient and cost-effective for investors and financial institutions alike. The pandemic accelerated the trend towards online banking and investing, as face-to-face interaction became either impractical or impossible.
Unfortunately, this has opened a new avenue for identity fraud. Scams and frauds focus on obtaining personal information and credentials (passphrases, birthdays, social security numbers) to gain access to funds online and withdraw money before the victim detects anything unusual.
Careless errors (such as leaving a password taped to a computer screen) can be avoided with common sense. But more sophisticated scams rely on impersonating a family member or a trusted institution (e.g. via an official-sounding call or email).
In case of being defrauded, you can still protect yourself by preparing a response plan (e.g. police report, locking your credit file). Your advisor and/ or bank can help you with this. As fraud continues to evolve, the best protection remains constant vigilance.
Portfolio Expenses
Fees are often less transparent than they should be. Some financial products are designed to be opaque, and a good financial advisor will help you avoid them.
Understanding fees can be a daunting task as there could be many different fees charged based on the services provided. Advisory fees are what an advisor will charge you for helping you build and maintain your investment strategy (including asset allocation, manager selections, etc.). Management fees relate to the ongoing management of underlying investments or assets (sourcing, evaluating, executing, monitoring, exiting). Performance fees are paid to the investment manager once the underlying investment meets or exceeds a minimum return per the private placement memorandum (PPM). Other small fees include custody fees, legal fees, and audit fees that are generally immaterial to the investment performance.
The complexity of these fees can vary widely depending on investments. Lower fees are not necessarily better, but lower complexity fees leave less room to hide. Your advisor should help you understand these fees. Transparency is practiced as one of the core values at The Family Office.
As your trusted advisor, The Family Office strives to place your investments with the best custodians with full transparency on fees, being always the trusted partner of our investors.
About David M. Darst, CFA
Since January 2017, David M. Darst, CFA has served as Senior Advisor and Investment Strategist of The Family Office in New York and Bahrain. In this role, he has significantly contributed to the formulation, communication, execution, and monitoring of the company’s asset allocation, investment strategy, and wealth management activities in the Gulf region, North America, Europe, and Asia.
Following a 25-year career with Goldman Sachs in Zurich and New York, David served for 17 years as a Managing Director and Chief Investment Strategist of Morgan Stanley Wealth Management. David was the founding President of the Morgan Stanley Investment Group, and has served for three years as CEO of Petiole Asset Management AG, the Zurich-based asset management arm of The Family Office.
David is the author of sixteen books, including The Complete Bond Book (McGraw-Hill), The Handbook of the Bond and Money Markets (McGraw-Hill), The Art of Asset Allocation, Second Edition (McGraw-Hill) and The Little Book that Saves Your Assets (John Wiley & Sons), which has been ranked on the bestseller lists of The New York Times and Bloomberg Business Week.
Disclaimer
This presentation is provided to you by The Family Office Co. BSC(c) (“The Family Office”) for informational purposes only, and contains proprietary information that may not be reproduced, distributed to, or used by, any third parties without The Family Office’s prior written consent.
All information, figures, calculations, graphs and other numerical representations appearing in this presentation have not been audited and may be subject to change over time. Furthermore, certain valuations (including valuations of investments) appearing in this presentation are subject to change as they may be based on either estimates or historical figures that do not reflect the latest valuation. Although all information and opinions expressed in this presentation were obtained from sources believed to be reliable and in good faith, no representation or warranty, express or implied, is made as to their accuracy or completeness. The information contained herein is not a substitute for a thorough due diligence investigation. Past performance is not indicative of and does not guarantee future performance. Exit timelines, prices and related projections are estimates only, and exits could happen sooner or later than expected, or at a higher or lower valuation than expected, and are conditional, among other things, on certain assumptions and future performance relating to the financial and operational health of each business and macroeconomic conditions.
The Family Office makes no representation or warranty, express or implied, with respect to any statistics or historical or current financial data, whether created by The Family Office through its own research or quoted from other sources. With respect to any such statistics or data delivered or made available by or on behalf of The Family Office, it is acknowledged that (a) the investor takes full responsibility for making its own evaluation of the materiality of the information and the integrity of the quoted source and (b) the investor has no claim against The Family Office.
Amounts in currencies other than the US Dollar are translated using prevailing market rates as calculated by The Family Office or its service providers and may differ from the rates used by banks. The rates are indicative only and do not reflect the rates at which The Family Office would be prepared to enter into any transactions with other parties.
Certain information contained in this presentation constitutes “forward-looking statements,” which can be identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “plans,” “estimates,” “intend,” “continue,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. To the extent this presentation contains any forecasts, projections, goals, plans and other forward-looking statements, such forward-looking statements are inherently subject to, known and unknown, significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond The Family Office’s control and may cause actual performance, financial results and other projections in the future to differ materially from any projections of future performance, results or achievements expressed or implied by such forward-looking statements. Investors should not place undue reliance on these forward-looking statements. The Family Office undertakes no obligation to update any forward-looking statements to conform to actual results or changes in The Family Office’s expectations, unless required by applicable law.
The Family Office makes no representation or warranty, express or implied, with respect to any financial projection or forecast. With respect to any such projection or forecast delivered or made available by or on behalf of The Family office, it is acknowledged that (a) there are uncertainties inherent in attempting to make such projections and forecasts, (b) the investor is familiar with such uncertainties, (c) the investor takes full responsibility for making its own evaluation of the adequacy and accuracy of all such projections and forecasts so furnished to it and (d) the investor has no claim against The Family Office.
This presentation represents a summary of certain information, the full terms of which are contained in a Private Placement Memorandum that should be reviewed for a more complete understanding of the investments and their risks. In addition, this presentation does not constitute an offer to sell, or a solicitation to buy, any instrument or other financial product, nor does it amount to a commitment by The Family Office to make such an offer at present or an indication of The Family Office’s willingness to make such an offer in the future.
The Family Office is a Category 1 Investment Firm regulated by the Central Bank of Bahrain C.R.No.53871 dated 21/6/2004. Paid Up Capital: US$ 10,000,000. The Family Office only offers products and services to ‘accredited investors’ as defined by the Central Bank of Bahrain.