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Safeguarding Assets
At Convergent Wealth Advisors, we are committed to safeguarding our clients’ assets from the process of investing and the challenges embedded in the markets. We remain in a constant state of reform to bolster our system of checks and balances to adapt to the ever-changing financial environment.
Third Party Custodians
The assets we manage for your institution are held by a third-party custodian in your institution’s name, not kept in a Convergent account.* A third-party custodian might be a financial services firm such as Charles Schwab, Fidelity, or Bank of America. The custodian maintains and safeguards your assets and executes the investment transactions that we recommend. Your custodian provides you with updates on the value of your assets. In addition to the consolidated reports you receive from Convergent, you receive statements directly from the custodian confirming all transactions; from trades and wire transfers to any changes in how the account is registered.
Using third-party custodians minimizes the exposure to risk and fraud because it establishes a secure check-and-balance relationship between Convergent, the investment managers and the third party custodian. In this relationship, we have no access to withdraw your institution’s money.
We are agnostic with respect to custodians and will work with any custodian that is in the best interest of the client; including one chosen by you. We currently coordinate with numerous custodians, although the majority of our clients’ assets are held at Schwab Institutional, a division of Charles Schwab & Company.
Audits
Convergent Wealth Advisors is subject to regular and rigorous audits. City National Corporation (NYSE: CYN), the parent company of City National Bank, indirectly owns a majority of Convergent’s equity. As such, Convergent is subject to internal audits conducted by City National Bank, as well as external audits conducted by their independent auditing firm, KPMG, LLP. In addition, Convergent is regulated by and subject to examinations by the Securities and Exchange Commission (SEC). City National Corporation is audited annually by KPMG and, as both a public company and a bank, City National is subject to regulation by the SEC as well as the Office of the Comptroller of the Currency (OCC).
While not required to do so, as an additional measure of safety, Convergent also employs a compliance consultant from ACA Compliance Group to conduct an annual mock SEC audit. These extensive examinations give us the opportunity to receive important feedback on our internal controls, especially in terms of how they conform to best practices in the industry. This audit assists us in reviewing our operations for compliance with federal securities laws.
All custodians who hold the assets of our clients are regulated by and subject to the examinations by FINRA and the SEC. FINRA is a self-regulatory organization with supervisory jurisdiction, including audit, over our custodians. These rules established by FINRA and the SEC are extensive and rigorous, and a failure to comply with them may result in penalties, fines or criminal action.
Due Diligence
The process we follow for selecting investment managers is rigorous, and our research is extensive. An overview of our due diligence process is found here. Our operational due diligence practices include extensive background checks, investor reference checks, and a review of the fund’s operational controls. In addition, we conduct periodic site visits and teleconferences with each fund manager that we recommend. Once we finally select a particular fund manager, we monitor that firm’s work continuously – looking at the portfolios of our clients, tracking the performance of funds, and monitoring investment styles for consistency. We take great pride in our well-documented due diligence practices and make it a point to share our research on fund managers with clients whenever we recommend an investment.
In addition to the operational due diligence practice that we follow when examining each fund and each investment manager, all hedge funds Convergent recommends are required to have a third party audit on an annual basis within 120 days of the fiscal year end or 180 days for hedge fund-of-funds, in accordance with Generally Accepted Accounting Principles (GAAP).
Given recent illiquidity with certain hedge fund strategies, we have reviewed our recommended funds to evaluate the risk associated with any concentration of a single group of investors that could detrimentally impact the liquidity of the fund. We are also taking an even closer look at the relationships between funds, especially those that fall into the master-feeder structure. And as always, we continue to press for transparency in all transactions, particularly when it relates to the lending arrangements for each fund.
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