Trust, But Verify!
About the author: Trini Guillen is dedicated to helping clients achieve financial freedom. Trini holds a Series 65 securities registration and has a Bachelor of Science in business administration with a focus in finance. He has spent 21 years in the financial industry. His previous experience includes trade system research and development, portfolio management, due diligence and trade execution.
Trust, but verify (Доверяй, но проверяй) a Russian proverb that President Ronald Reagan frequently referred to when discussing US & Soviet relations. We find ourselves using this as a method of protection from adverse consequences. When we purchase a home, the sale is often pending the proper inspections and tests to provide the buyer confidence in the purchase of the asset. We use CARFAX to find car’s repair history. Heck, even social media giant, Twitter, has a verification symbol to ensure a celebrity, company or public figure’s account handle is legitimate. We go to great lengths to ensure what we are buying or who we are speaking to are what they really are or who they really claim to be.
So, why do investors not verify who is managing their assets through tools such as BrokerCheck? Equally as important, the vehicles you use are managed by roughly 15,000 asset management firms whom all have the ability to fall under the CFA Institute Asset Manager Code of Conduct and/or subject themselves to the Global Investment Performance Standards (GIPS). As you can see, on average less than 15% of those asset managers are firms claiming GIPS compliant.
Even more disturbing is that the larger the assets under management the fewer adhere to this method of verification.
Maybe you were not aware that these credentials or tools existed? Well, you do now and think about it, how long did it take for you to build your wealth? If you’re going to spend hours trying to find the best deal on your next car and ensure that the quality, dependability and independent ratings support your decision, isn’t your nest egg worth more time and effort? I suppose it is what you value.
As I searched for the solutions we would use at Cornerstone I had two choices, bury myself with some 15,000 options or narrow my search by eliminating 90% of the asset managers available. Over 20 years in outsourcing to investment managers has established the due diligence process I still use today. The investment manager must be met in person and onsite. Experience, track record and credentials must all be verifiable. This process has kept me from less than savory firms that are in the business for their interests and not yours.
The investment managers that subject themselves to GIPS compliance standards and adhere to the CFA Code of Conduct year after year assures myself that we have taken the necessary steps to further reduce risks of fraud and/or misconduct. The GIPS compliance standards and the CFA ethic codes are verification tools that we use and our investment manager must maintain.
If you haven’t done a Broker Check on your advisor you should. If there are any issues with the advisor you will find them in the disclosure section. If you do not know if your solution is GIPS compliant you need to find out. If your home, your car or the reviews you read on the purchases you make are worth your time to protect you from buying a lemon; then demanding that your investment solutions are GIPS compliant should be a priority of yours today to give you peace of mind for tomorrow.