The Madoff Effect: Do you trust family businesses?

Runnymede family businessEver since Bernie Madoff’s $50 billion ponzi scheme hit the news in 2008, as a family investment firm we inevitably face the question, in no uncertain terms, “How do we know that you aren’t another Madoff?” First of all, I don’t think one bad apple should spoil the bunch. America has been built on the backs of great entrepreneurial families whose businesses are still thriving today. Walmart, Mars, Aflac and Fidelity Investments are family owned shops that have grown into multi-billion dollar corporations. I don’t think anyone questions them just because they are family businesses. But I understand people’s concerns especially when their hard earned savings are on the line.

So how are we different?

While Madoff was a registered investment advisor like us, Runnymede family businessthat is where the similarity ends. One distinction between our firms is that we have integrity and moral standards. We treat our clients as our extended family and stand by the fiduciary standard. Our team is proud that it has been recognized for its award winning “Best Customer Service in Investment Management” in 2012 and 2013 by Captive Review. In addition, Runnymede works with Ashland Partners, an independent third party firm, for verification of Runnymede's compliance with the GIPS standards and more extensive performance examination of specific composite track records.

Another important distinction is that Madoff was also a broker dealer which allowed him to custody client assets at his firm. This was the essential piece to his ponzi scheme. With all the assets under his control, he was able to do as he pleased. Madoff employee Frank DiPascali recently testified in court that no trading happened at all. The trades were completely fictitious and then the firm would send fake statements to clients. In the meantime, Madoff spent his clients' money on his lavish lifestyle.

At Runnymede, we are an investment advisor only. We are NOT a broker dealer therefore we do NOT custody client assets like Madoff did. Clients appoint Runnymede as their investment advisor and authorize us by a limited power of attorney to trade on their behalf. Important account functions like cash withdrawals, change of beneficiary or other major account actions may only be authorized by the account owner. Client assets are safeguarded and deposited at nationally recognized firms like Fidelity Investments and TD Ameritrade which are completely independent from us. Clients receive trade confirmations and monthly statements directly from the custodian so there is no opportunity for Madoff type funny business.

In the end, we are proud to be a family owned business and hope to grow ours like the Walton or Mars family did over multiple generations. We are proud to say that we are not Madoff and will never be.

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About the Author: Chris Wang

Chris Wang

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Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede Capital Management, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede Capital Management, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Runnymede Capital Management, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.