Trust Custody

Who owns the investments in your brokerage account?

When you buy a home, the Deed to the property is recorded in your name.

When you buy a car, the car’s Title is registered in your name.

If your home was instead deeded to your real estate broker or your car registered to the car dealer, most of us would find that completely unacceptable for an asset that we own. But when we buy stocks or other investments, this is exactly what happens — and worse, your assets can be used for other purposes by the broker while you own them.

Wall Street brokerage firms use a system of ownership called “Street Name Registration”. This means that when you buy an investment, the ownership is registered in the name of your broker — not yours. The brokerage firm then keeps a record of which investments they own that are allocated to you.

Theoretically, street-name registration makes it easier for your broker to make transactions in the security. In reality, it is a mechanism to increase their profits by putting your investments at greater risk.

Through a process of “hypothecation” and re-hypothecation”, banks and brokerage firms are able to borrow your investment assets, lend them to others, and use them as collateral for leveraged transactions.

In normal times, you’ll never notice. But during a financial crisis? You might not own what you think you own.

There is an easy solution.

Trust Company Custody

One of the core tenets of our investment philosophy, designed to protect client assets, is:

10. Trust Custody — Your investment assets with us are held at a separate trust company in a segregated account under your name, protected by U.S. trust laws. It is the most secure form of investment custody available.

By placing your investments with a trust company — not a bank or brokerage firm — your assets are segregated and held in your name.

Your assets are not co-mingled with the trust company’s assets. As a result, their creditors have no claim to your assets.

Your assets are not used as collateral for lending activities, and the trust company can not pledge, lend, or margin your assets.

You can grant access to third-party advisors and managers, such as Precedent Asset Management, to trade securities — but the trust company does not send your assets to these firms. Assets remain held in safekeeping at the trust company — protecting your assets from fraud and institutional failure.

More information on the asset safety measures we use at Precedent Asset Management is at https://precedentam.com/safety/