Wisconsin Statutes require both domestic and town mutual insurers to hold investment securities in their own name.  This means you are required to have the certificate that is issued by the entity in which you hold the investment - stock, bond, CD, mutual fund, etc. - registered in your name.  You should keep these certificates in a vault or safe deposit box.

The only exception to this requirement permits you to maintain investments under a custodial agreement with a bank or bank trust department.  In this situation, the bank is permitted to have the issuer list the bank's nominee as the owner of the investment on its records.  Your statement from the bank is adequate evidence of your ownership of such assets, and the physical safeguarding of the asset that you would otherwise accomplish by a vault is the bank's responsibility under its custody agreement.

It is important for you to note that an investment is NOT permitted to be maintained by a brokerage firm or mutual fund company under these rules.  In other words, your broker "advisor" cannot purchase a stock, bond or mutual fund for you and then hold it for you in an account with his/her brokerage firm. You also cannot open an account at a mutual fund company and have your mutual fund shares held in that account.  In these cases, the rules require either that you have the certificate representing your ownership delivered to you for you to hold or that your ownership is held for you by a bank.

These rules are designed to protect you and your policyholders.  If you hold the investments yourself, only you and your staff have access to them and you have operational protections in place to secure against misappropriation or malfeasance.  If your assets are held by a bank as custodian, banking rules require them to be held separate and apart from the bank's own assets.  Even if the bank ends up in trouble, your assets should still be intact for you in a facility separate from the bank.  Only you and authorized personnel of the bank - but importantly, NOT your advisor - have access to your assets.

Assets held by a brokerage firm or mutual fund company are part of that firm's own assets.  Their balance sheet shows your assets as assets of theirs and shows their account with you as a liability.  While this may seem like only an accounting issue, it has potentially significant consequences for you should the brokerage firm or mutual fund company end up in trouble.  You are simply a general creditor and will stand in line to collect your assets should there be a problem.  And if your "advisor" is an employee of the brokerage firm, he/she will have access to your assets. These risks, which are not part of permitted custody arrangements, are likely important reasons the requirements exist.

It is often difficult to distinguish the services of one financial "advisor" from another.  The cynical among us would suggest that this is the result of calculated efforts to confuse the public mind on the issue.  We have those who function as nothing more than product salepersons calling themselves "advisors".  When you go into the Ford dealer to buy a car, you are well aware that they are trying to get you to buy a Ford whether they call their representative a salesperson, an advisor, a consultant, or whatever.  But when walk into a brokerage firm (the financial industry's version of a car dealer), we think someone with the title of "advisor" is actually objectively reviewing all alternatives and merely "advising" us on what is truly the best for us?

A big push over the past few years has been to educate the public on the difference between a "fiduciary advisor" - i.e., someone who truly IS objective and unbiased and owes you the obligation to guide you to what is best for you - and these salesperson "advisors".  However, now some of the salesperson "advisors" have structured themselves in a way to be able to claim they are providing "fiduciary" advice.  It is certainly not the same level of fiduciary advice as is provided by an independent fiduciary because of the rampant conflicts of interest between the product sales element of the brokerage firm and the advisory arm of the "fiduciary".  But it certainly effectively muddies the waters.

If you are confused about these differences, visit our website at www.financialfiduciariesllc.com.  We provide convenient and updated access there to information that will hopefully bring you to a clearer understanding on differences between financial services providers.  Also, keep an eye out for our upcoming video, "Faux Fiduciaries", which will provide a somewhat humorous - yet meaningful - take on these distinctions.