I recently met with a prospective client who asked me this question. It is not the first time I have been asked it and, although I address it to those prospective clients who ask, I thought I would also address it in a blog. The answer is, unequivocally, "No".
Let me start by explaining how, logistically, we manage money at High Rock.
First, in our Institutional division, we manage two "funds" for Scotiabank. These funds are what are called prospectus-based, which means the prospectus was written by lawyers, went back and forth with the lawyers at the Ontario Securities Commission (OSC) until they got comfortable and blessed it for sale to "retail" accounts through the the Investment Advisor network. This blessing by the OSC is meant to protect retail investors (I won't opine here if all blessings achieve their stated goals, or not). So when a Fund Manager (Scotiabank in our case) manages a fund, they are required to follow lots of rules and requirements (that all add costs to the fund that then get passed on to the retail buyer who bought it from their Investment Advisor) such as hiring a large accounting firm to perform an annual audit, hiring an Independent Review Committee to ensure the fund is operating according to it's stated mandate, operations, custody etc. To operate a fund is somewhat expensive and cumbersome. So the two funds we manage for Scotiabank operate where Scotiabank is the Fund Manager and High Rock is the Portfolio Manage/Sub-advisor. Scotiabank handles all of the finance, operations, etc while High Rock handles the daily portfolio management of the funds.
Now compare that to High Rock's Private Client division where we manage all Private Client accounts on what is called a Separately Managed Account (SMA) basis. Managing money on an SMA basis means that we don't manage private client money in "pooled funds" where clients own "units" in the pool or fund. Effectively what account management on an SMA basis means is:
These account opening docs are then sent to our custodian, Raymond James Correspondent Services (RJCS). We need a Custodian to hold the securities, settle trades, produce quarterly and year-end reports and tax-related docs. We chose to use RJCS for several reasons but mainly due to superior technology, cybersecurity and financial health. RJCS is also a member of the Canadian Investor Protection Fund (CIPF) which insures each client account for up to $1mm if something bad happens to the custodian (the CIPF insurance is the same whether you hold your account at RBC, National Bank or Raymond James...bigger isn't always better).
While those accounts are being opened up at RJCS, Bianca will then ask you to give us a ton of personal and financial information about your household. We need to accumulate all of this for a few reasons. Firstly, this information helps us know more about your current situation and your goals which helps us ascertain the risk and return you are willing and, perhaps, need to take to meet your goals. Moreover, we are required by our securities regulators (OSC and the regulators of BC, Alta, and Sask) to collect this data at our initial discussion but then to also keep it updated during the semi-annual reviews we have with all of our clients. At High Rock, we go one step further when we collect information. Bianca, who has achieved her Certified Financial Planning (CFP) designation, performs an in-depth Wealth Forecast. This Wealth Forecast is a key determinant in how we structure your portfolio and it too is an ongoing process...because things change. If you have never had a Wealth Forecast done, I strongly encourage you to do so.
Importantly, this personal information is kept securely at both RJCS and at High Rock. At High Rock we keep one hard copy in the office locked in a cabinet and any other client-sensitive documents are stored in the cloud with two-stage encrypted cybersecurity protection. Also important to note that we do not keep SIN's electronically (they are held at RJCS in the account opening docs and at High Rock in the locked cabinet).
As we gather all of this information from you, we put it into various docs and have you sign them. Here is a brief description of the docs that we retain at High Rock:
The information gathering/collecting is a dynamic process because if something changes in your personal situation, we will need to change the way we manage your money.
So the key here is that, once you decide to join High Rock's Private Client division, it is your account, your securities, your cash at all times. High Rock does not directly handle cash, securities, etc. When you deposit money into your account, you will make a cheque payable to Raymond James, not High Rock.
If ever (it hasn't happened yet, and I don't think it ever will) you decide that we are not doing what we said we were going to do or, for whatever reason, you don't want High Rock to manage your money any longer, then you send Scott, Bianca or I an email (or phone) stating not to do any further trades in your account (this effectively breaks the IMA we had in place). Then you can do whatever you want with your account...you can liquidate the securities on your own, you can transfer it to an Investment Advisor at any bank/dealer, you can transfer it to an online broker...whatever you want...it's all yours!
No "Madoff's" happening here.