by Salman Ahmed

It’s hard to trust someone enough to invest your hard-earned money with them. The financial industry doesn’t do itself any favours either. In the aftermath of the ’08-’09 credit crisis, iconic names like Lehman Brothers went bankrupt. The public also saw how low people can stoop to defraud investors – Bernie Madoff went from being an esteemed member of the community to a villain. And recently, after allegedly raising $30 million from 50 investors, Virginia Mary Tan from West Vancouver, admitted to running a Ponzi scheme.

In moments like this it’s valuable to remind our investors and those considering Steadyhand how their money is safeguarded from nefarious activity or bankruptcy - you have a right to ask this of any investment provider you work with. It’s important to note, however, that these measures aren’t meant to protect investors from the natural ups and downs a portfolio may experience in fluctuating markets.

MFDA Investor Protection Fund: Steadyhand is a member of the Mutual Fund Dealers Association (MFDA) and pays into a fund that serves to protect clients’ assets in case of insolvency. For those clients that open their accounts directly with us, up to $1 million of an investor’s registered accounts, including RRSPs, RRIFs and TFSAs, are covered in aggregate. Another $1 million coverage is afforded to taxable accounts. You can find more details here.

Mutual Fund Trust: While MFDA protection is comforting, investors’ primary line of defense comes from the way mutual funds are structured. When clients invest with Steadyhand, their money does not go into a Steadyhand bank account. Instead, it goes into a trust overseen by a third-party trustee that is held at a custodian - in our case, RBC Investor Services. As portfolio managers, we decide what stocks or bonds that trust should own, but can’t access any of the funds because the trust is completely separate from Steadyhand.

While our funds’ assets are held at a custodian, they do not belong to the custodian. Nor do they belong to Steadyhand, our portfolio advisers, or our trustee. Rather, they belong to the funds themselves and, in turn, fundholders. Neither Steadyhand nor any of the companies involved in providing services to our funds have any claim to the funds’ assets. This separation of ownership ensures that the investors in our funds are the only individuals that have access or claim to the assets within them and they’re protected if we or any of our service providers ever face financial difficulties.

Non-discretionary relationship: Investment providers generally offer one of two relationships with their clients: discretionary or non-discretionary. This bit of jargon is an important distinction in the way investment firms operate.

We have a non-discretionary relationship with our clients. This means that we do not have the authority to decide what funds you should own in your accounts. We provide lots of advice on what we believe you should own and in what proportion, but ultimately, it’s you that makes the decision. To further ensure you are protected, transactions can only be made once we verify your identity over our recorded phone line, or through a signed document.

Audits: KPMG, one of the “big four” accounting firms, audits our funds every year. These audited financial statements are available on our website and SEDAR. We are also audited by the British Columbia Securities Commission, MFDA, Canadian Western Trust and FINTRAC, which monitors money laundering practices. Many of these audits happen on a surprise basis, and who doesn’t love a surprise?

Independent Review Committee (IRC): This committee is comprised of at least three individuals who are independent of the portfolio manager. The IRC is tasked with monitoring conflicts and issues an annual report discussing their findings.

No safeguards are 100% foolproof. But these measures, when combined with our business principles - transparency, co-investing, low-fees, and being our clients’ steady hand – should give investors some confidence that their money is protected from fraud or insolvency.