Protect Your Portfolio from Fraud and Bankruptcy

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expat investment advice

By Peggy Creveling, CFA and Chad Creveling, CFA

Although it may not be common to have problems with a brokerage or custodial account, fraud and bankruptcies can and do happen.  These types of issues may occur more frequently in the offshore world where regulators in the developed world may not have a handle on the various players and where money is being channeled through tax havens, but they can also happen in larger or better-regulated markets. The U.S. has had well documented high-profile brokerage bankruptcies, including the collapse of Lehman Brothers in 2008 and the fraud-related busts of firms like Bernie L. Madoff Investment Securities and MF Global. Most recently, bankruptcies have roiled the unregulated crypto-world, to include FTX, Genesis, Celsius Network, Voyager, and other firms.

For expats concerned about the safety of investments held in custodial or brokerage accounts, you can take steps to help make sure that your investments are protected. Here's a checklist:

  • Choose to hold your investments at a custodian or broker-dealer that is regulated by a credible major regulator. Double-check with the regulator directly to make sure that the entity is indeed properly regulated. Find out if any complaints have been filed.
  • Avoid custodians that partake in risky activities, such as derivatives trading. If your custodian conducts proprietary trading for its own book, ensure that this is done in a legal entity separate from where client accounts are held.
  • Check with your custodian or broker-dealer as well as its regulator to see how your investment funds are protected from fraud or if the firm were to go bankrupt.
  • Check the financial strength of your custodian or broker. Look for a sizable equity base and strong credit rating.
  • Review and maintain a copy of your latest brokerage account statement showing the investments that the account contains. Make sure that the statement reflects all activity in your account and that holdings are correct. Any errors should be reported immediately to the broker in writing. If problems persist, contact the relevant regulator.
  • For investors using U.S. custodians or broker-dealers, read about the role of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), whose specific job is to restore funds to investors with assets in the hands of bankrupt or financially troubled registered broker-dealers.

The good news is that unless a regulated financial custodian or broker-dealer engages in outside risky activities or outright fraud, the potential for bankruptcy is low. And even if a custodian goes bankrupt, as long as your broker kept client accounts separate, in most well-regulated jurisdictions your account should merely be transferred intact to a different, solvent broker.

This article is a revised and updated version of one that appeared previously on www.crevelingandcreveling.com.

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About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. The firm is a Registered Investment Adviser with the U.S. SEC and is licensed and regulated by the Thai SEC. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future.

Copyright © 2024 Creveling & Creveling Private Wealth Advisory, All rights reserved. The articles and writings are not recommendations or solicitations, and guest articles express the opinion of the author; which may or may not reflect the views of Creveling & Creveling.