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Charles Schwab Corp. has begun calling clients of some registered investment advisers to verify that they have authorized wire transfers of funds from accounts held in custody at the broker-dealer.
The move, which follows the Securities and Exchange Commission's efforts to verify account statements with some clients of advisers in the wake of Bernard Madoff's Ponzi scheme, is the latest twist in custodians' efforts to ensure that they aren't held liable for adviser fraud.
Schwab, the largest custodian of RIA client assets, last February informed advisers that it was re¬stricting their ability to keep assets invested in private placements and other alternative investments on the firm's custody platform.
Advisers, for their part, said that they understand Schwab's policy of verifying wire transfers, and think that it may offer clients a new level of confidence about the security of their assets. However, some also expressed concern that some clients — particularly those still unnerved by the disastrous markets of 2008 and the shaky economy — could misinterpret a call from an un¬known third party.
“My main concern is that it's planting a seed of distrust in the client's mind,” said one RIA in New York, who said that he learned of the calls from a client who had been contacted by a Schwab service representative this month.
“I understand 1,000% why they are doing it. They don't want responsibility for RIAs who they didn't train,” the RIA said.
The adviser, who asked that his name not be used for fear of jeopardizing his more-than-15-year relationship with Schwab, said that his sales rep told him that the calls were triggered by a recent incident in which an adviser was caught stealing money from a client.
Schwab spokeswoman Alison Wertheim declined to respond to several requests for comment on the reasons for the move, the criteria used to trigger calls or the potential duration of the checks.
She also declined to discuss adviser reaction to the policy.
To read the full story, please see the Monday, February 15 print issue of InvestmentNews
