Do You Know Where Your Retirement Dollars Are?
A custodian is a financial institution that holds customers’ securities for safekeeping so as to minimize the risk of their theft or loss. Traditionally retirement custodians have been commercial banks, but with the significant increase in retirement dollars, more and more brokerage firms have set-up their own custodians, with the advent of defined contribution plans (401k’s).
In the case of some of the newest entrants to managing retirement money, online investment management firm, Wealthfront, for example, surprisingly uses a two-year old brokerage firm, APEX, to do clearing, execution and custody. Not On My Nickel believes with examples of significant market abuses, such as Madoff and MF Global, it may make sense to have segregation of function. Further, are these relatively new firms adequately capitalized? This article from Marketwatch, from 2008, when fears of failures were high during the largest financial crisis since the Great Depression, reveals some of the issues with using brokerage accounts as your custodian.
Further, the SEC has issued a detailed and complex answer on their “Custody Rule.” What firm that is safekeeping your retirement assets is a very complex issue, that should not be ignored.
The issue of custodians typically arises only when there is fraud or significant systemic risk, such as in the 2008 financial crisis. However, there may be a reason why SEC Commissioner Kara Stein warned about brokerage firms and systemic risk in her speech, June 12, 2014 to the Peterson Institute. Until brokerage firms that are “safekeeping” retirement assets shore up with more capital, it may be better to be safe, than sorry.
Not On My Nickel has added a seventh criteria for the selection of any money manager for your retirement assets. Where does that money manager safe keep your retirement nest egg?
As the New York Times finally reported today, that “advisor” in your workplace may not be acting in your best interest.
Ask you employer to include us in your workplace financial education plan. We are the first and only independent financial education service that provides the tools, transparency and technology to empower anyone to finally understand the investment selection process. Whether it be a Target Date Fund, a new fangled “robo-advisor” pushing passively managed portfolios or an actively managed fund, one now has the tool to make an informed decision on what investment selection is in one’s best interest, after all fees.