Asset Custody and Safety
All investors, regardless of their ultimate goals, have one objective in common – protecting the safety and security of their assets as they work toward their goals. To help ensure this objective is met, Precedent Asset Management is committed to protecting your investment accounts from fraud and has established a relationship with SEI Private Trust Company to serve as the independent custodian of our clients’ wealth.
SEI began in 1968 developing computer systems to help bank trust departments account for the assets under their administration and operate more efficiently. Now, with nearly 50 years of experience, SEI is the industry leader in this market, serving nine of the twenty largest U.S. banks, and having a relationship with over 100 additional banks and trust institutions for custody administration. Using this same state-of-the-art technology, SEI Private Trust Company directly custodies and ensures the security of our client assets.
Chain of Custody and Reporting
Many of the recent high-profile investment frauds have involved exploitation of two vulnerable steps in the chain of custody of client wealth: 1) an advisor or firm receiving client assets directly, such as a deposit check made payable to the firm, and 2) monthly or quarterly asset statements being produced and mailed directly by the advisor. This creates the opportunity for an advisor to steal client assets and simultaneously produce fraudulent statements that conceal the theft. By the time the fraud is detected, the assets may be far from fully recoverable.
In contrast, Precedent Asset Management does not take custody of client assets at any point. Deposit checks are made payable directly to the trust company, and quarterly accounting statements are prepared and sent directly to the client from the trust company. There is no opportunity for the advisor to fraudulently intervene.
Perhaps the largest fraud in financial history was perpetrated by a money manager through the manipulation of custody records for client accounts. When clients and their advisors hired Bernie Madoff, they delivered client funds to the manager and received fraudulent accounting records in return. Precedent Asset Management does not take custody of client assets. Instead, all assets are held at SEI Private Trust Company, and you simply grant us access to trade securities at the trust company.
By maintaining direct custody of your wealth at a federally chartered trust company at all times, never delivering assets to an advisor or manager, and generating all accounting and reporting directly from the trust company, we have designed our chain of custody to minimize opportunities for fraud and to ensure the safety of your assets.
Comingling and Lending Assets
All banks and brokerage firms can comingle investor funds. They can lend securities, offer margin lending, and use their clients’ assets as collateral for their own borrowing and lending activities. Unfortunately, margin lending and comingling of funds has been a factor in some fraud situations and the primary cause of at least one high-profile failure.
As a trust company, SEI Private Trust cannot commingle funds, hold client funds, in “street name,” or use client funds in its own account for any use – lending or otherwise – because all client assets are held in an account under the client’s name. Further, the trust company cannot pledge, lend or margin client assets that are held in its custody.
Precedent Asset Management maintains a fiduciary bond of $25 million, and SEI maintains a $60 million fidelity bond. The coverage includes forgery or alteration, counterfeit currency, computer systems fraud and other causes of loss. Additionally, SEI maintains a $75 million errors and omissions professional liability policy alongside Precedent Asset Management’s $1 million per claim professional liability policy.
Audits and Examinations
As a state-registered investment advisor, Precedent Asset Management receives periodic examinations by the Securities Divison of the Sectetary of State, in addition to our annual filings with the Securities and Exchange Commission.
As a federally chartered limited purpose savings association, SEI Private Trust Company adheres to extensive federally mandated controls designed to prevent fraudulent activity. These control measures are audited by both independent and internal auditors, and the trust company is subject to further examination by the Office of the Comptroller of the Currency (OCC). A copy of SEI’s SSAE No. 16 (formerly SAS 70) is available upon request, providing a comprehensive description of the design, suitability, and effectiveness of these controls.
> Precedent Asset Management client assets are deposited directly to SEI Private Trust Company, and all client accounting statements are prepared and mailed directly by the trust company.
> We do not take custody of client assets. Your assets are managed directly on the trust platform where all activity is independently monitored and reported.
> Since SEI Private Trust Company is a trust institution – not a bank or brokerage firm – your assets are segregated from SEI’s and they are custodied in your name. This means trust company creditors have no claim to your assets.
> SEI Private Trust Company, like other trust companies, may not pledge, lend, or margin assets that are held in custody.
> Providing a final layer of protection, the trust company is regularly audited by independent auditors and is subject to routine examination by the federal Office of the Comptroller of the Currency. Precedent Asset Management is subject to routine examination by the Indiana Securities Division.
> Fidelity Bonds and Errors & Omissions insurance coverage are in place to protect you from employee errors, dishonesty, and fraud.