Avoiding Fraud by Investment Managers

I came across an interesting article today on the financial blog Acrimoney.com. The piece is from March 2009, but the author's advice is still as true as it was then. The topic is how to avoid being the victim of Ponzi schemes and other investment scams.

Excerpt:

After fifteen years in wealth management—with both investment boutiques and brokerage houses—I know only one foolproof way to beat fraud: separate money management from reporting. You can hire that lights-out investment manager. But keep all your assets with a custodial bank like State Street or Pershing. They report your account value, not the money manager. It’s like separating church and state.

Custodians don’t make investment decisions. They hold securities, process trades, and provide independent statements showing your portfolio’s value. They collect dividends and bond payments. They receive wire transfers into your account or send them with your instructions. Their job is to watch your money. In the timeless words of Ronald Reagan, custodians enable you to “trust but verify” what your money managers claim.

Full article