February 26, 2020
We all face potential loss from natural disasters. Regionally, we endure storms, fires, earthquakes, and floods. In order to give ourselves comfort we prepare for such unforeseen threats. Emergency preparedness includes taking inventory of what we have and how to protect against the loss of those items. This personal risk assessment allows us to reduce the stress of what could happen if faced with an emergency.
Similar to your personal inventory to prepare for a natural disaster, we inventory our firm to make it stronger for our clients. We take snapshots of our business in order to identify and alleviate threats to our firm’s stability. Risk management is viewed through a client-focused lens, with the ultimate goal of being in a position to provide exceptional investment and wealth management advice. We are here for the long term, to support you and your future generations.
“We are here for the long term, to support you and your future generations.”
This commitment to our clients is embedded in the foundation of our firm. We are charter members of the Investment Counsel Association of America (now the Investment Adviser Association), established in 1937, which provides the “Standards of Practice” for our industry, set forth to support our loyalty to clients. These standards assert, “An investment adviser should run its business responsibly and ethically, including ensuring that its financial condition, operations, and compliance structure are appropriate to protect its clients’ interests.” Additionally, as a Registered Investment Adviser (RIA), our firm is regulated by the Securities and Exchange Commission (SEC) and held to the fiduciary standard by the Investment Advisers Act of 1940.
Structure to Protect Clients' Interests
In my role as Chief Compliance Officer (CCO), I work with the firm’s management team to scrutinize areas of potential vulnerability in our ability to provide the utmost care to our clients. These areas are organized in a risk matrix. This fluid document is categorized by type of exposure to our business: reputational, credit, operational, or market. Specific risks that fall under these categories are assigned a numerical risk level. Additionally, the matrix includes a description of our controls, how we are responding to or remedying a risk, and monitoring and testing protocols. In order to mitigate identified risks, we create and implement specific policies and procedures.
Our management team actively monitors our business risk by supervising the daily operations of the firm through a comprehensive compliance program that includes risk assessment and management. As CCO, it is my responsibility to oversee the risk assessment, keeping in mind the effects of potential risk on clients. I also enforce our established policies and procedures, which are designed to reduce threats to our firm’s strength. These policies and procedures are woven into our daily business routines, which I monitor for their effectiveness throughout the year. Any recognized weakness in a policy is documented and immediately modified to improve the protection of our business. The risks are summarized and presented to Clifford Swan’s Board of Directors annually.
“As a fiduciary, we have an overarching responsibility to act in our clients’ best interests.”
Hiring and retaining exceptional employees—who possess a “clients first” mindset—is the cornerstone of our firm’s ability to follow our established procedures. When hiring new employees, we follow protocols to be sure we know who joins our team. We seek employees who ascribe to our culture of providing exceptional service to our clients. Additionally, as a 100% employee-owned firm, we have committed, long-term partners in place as well as next generation talent to ensure continuity and excellence. We promote a culture of high ethical standards and all employees abide by our Code of Ethics. The Code is based upon our fiduciary duty as an investment adviser. As a fiduciary, we have an overarching responsibility to act in our clients’ best interests. Each employee annually attests to, “…act with integrity, competence, diligence, respect and in an ethical manner with our clients, and colleagues.” Our Code is refined to protect our reputation and commitment to excellence.
Maintaining Financial Strength
Monitoring our financial strength, in order to stay solvent and in business, sits near the top of our list of commitments to ourselves and our clients. One way we protect the financial strength of our firm is through vigilant oversight of our clients’ assets. Investment counselors and client service specialists (CSS’s) work as teams, with investment counselors managing investment risk and CSS’s following procedures to guard against non-investment risks.
Our Board of Directors employs prudence when managing the firm’s finances. A thorough accounting of expenditures is discussed at each quarterly meeting to safeguard our firm’s solvency. Potential vulnerabilities to the firm’s financial strength are discussed and mitigated through placement of appropriate insurance policies.
Monitoring Client Portfolios
On a daily basis, CSS’s review client portfolios for cash inflows and outflows and coordinate with investment counselors as appropriate to make sure cash does not sit idle and that trades are placed to cover debits. CSS’s monitor availability of cash for regular distributions and alert investment counselors of low balances. To further protect client assets, any requests for distributions are verbally confirmed with the client. This procedure helps us avoid acting on fraudulent requests, which can be sent from either hacked email accounts or accounts impersonating clients. While rare, any trade errors are reported to our management team and notated within our risk assessment.
“Importantly, our policies and procedures evolve as the risk landscape changes to avert errors that could affect our financial strength.”
Our policies and procedures are revised as necessary, and training provided to our employees to diminish any vulnerabilities. Importantly, our policies and procedures evolve as the risk landscape changes to avert errors that could affect our financial strength.
Keeping Data Secure
To protect client privacy and the safety of our electronically stored data, our operations team guards against cyber-attacks or threats to personal data privacy. Tests are in place to confirm that our firewall is active, sufficiently functioning and in compliance with our state’s requirements. We protect your data and defend against hackers looking to gain access to our systems. By regularly testing our systems and providing training to our employees, we lessen the possibility of threats on our clients’ personal information.
Clifford Swan’s Board of Directors plays a vital role in the successful mitigation of risk. Members of the Board commit to shared responsibility for the well-being of the firm. Each member is an active advocate for the values, mission, and vision of Clifford Swan. Corporate governance by the Board is defined by an exemplary fiduciary, financial, and legal duty to the firm. Through identifying and minimizing risks, providing oversight to the financial affairs of the firm, and by placing the interests of the firm above all others, the Board advances the purpose of the firm. It provides the foundation necessary to maintain our reputation and our clients’ trust.
“The task of managing business risk is a continual process.”
The task of managing business risk is a continual process. Clifford Swan is committed to this practice through the structure we have in place. Our daily procedures create a set of tools to reduce risk of loss. Preparedness begins with knowing your perceived threats; mitigating them occurs through planning and action. While this article has considered how we keep Clifford Swan strong from a business perspective, we view each of our areas of risk equally. Our focus may rotate between the types of risk, but our emphasis on continual monitoring is paramount. As you rely upon our expertise in wealth management, we know you also place faith in us to manage our firm appropriately in order to remain your longstanding investment counselor.
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The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.