Safeguarding Your AssetsThe Value of Using Third-Party Custodians

Our clients and potential clients often ask why REDW Stanley relies on third-party firms like T.D. Ameritrade and Charles Schwab to serve as custodians for their assets. This is because REDW Stanley—unlike such investment advisors as Bernie Madoff—considers guarding the security of our clients’ assets to be an important and critical function of our practice. Having third parties serve as custodians reduces the opportunity for fraud, because we never directly processes your checks, deposits or withdrawals. While REDW Stanley can direct that a withdrawal be made on your behalf, for example, any withdrawal must be deposited to another of your accounts or be sent via check to your home address. Withdrawals that are directed anywhere else require your signature, and the custodian is responsible if money leaves your account due to a forged signature. Thanks to the vigilance of our custodians, several of our clients have been required to verify a signature before a check was paid because the signature on a check did not match the signature on file. While this can be inconvenient for a client, it demonstrates how carefully our custodians monitor our clients’ accounts, and how seriously they regard their legal responsibility.

Determining a proper custodian is an important decision, and one that REDW Stanley examines and evaluates on an ongoing basis. As an independent, fee-only, Registered Investment Advisor (RIA) regulated by the Securities and Exchange Commission (SEC) and a fiduciary to our clients, we are committed to being innovative and client-centered, fostering collaboration between our clients and the professionals of REDW Stanley. We look for a custodian who can help us provide the best possible services and products to our clients at a reasonable cost. A few of the metrics we use to evaluate custodians include:

• Do they demonstrate a passion for client service?

• Do they provide asset security?

• Do they stay abreast of evolving technologies?

• Do they provide up-to-date products and services?

• Do they offer competitive pricing?

• Do they provide compliance and best practices support?

When REDW Stanley performs due diligence regarding custodians, we look for firms who know and understand our business. If they provide us with exceptional client service, we are able, in turn, to deliver outstanding service to our clients. We want a minimal number of required forms, and forms that are easy to understand. We want a timely response to those out-of-the-ordinary client matters, assistance in opening accounts and transferring assets, and a willingness to help us minimize inconveniences to our clients. Each of our custodians provides a dedicated sales team and a dedicated service team that work with us to solve problems we might encounter when opening, maintaining or servicing our clients’ accounts. And both of our custodians have subject matter experts in many areas who are available to help us respond to unique client requests.

Asset security and safekeeping are important considerations when evaluating custodians. Custodians must, according to their rules and regulations, segregate their clients’ assets from the company’s assets. This requirement is designed to prevent custodians from using client assets to finance their business. Custodians must also comply with extensive regulatory recordkeeping and reporting procedures. For instance, every quarter a custodian must count and verify the location of all securities, including a physical count of certificates stored in its vault. In addition, comprehensive ownership records must be provided to verify that accounts are correctly assigned upon reaching the appropriate clearinghouse. Custodians can be fined or disciplined if these requirements are not met.

We also want a custodian who is a member of the Securities Investor Protector Corporation (SIPC). SIPC was created by Congress to protect investors against insolvencies and broker theft of securities. SIPC does not cover securities that simply decline in market value, since market losses are a normal part of the ups and downs of investing in the stock market. It does, however, provide up to $500,000 of protection for client accounts (with a limit of $100,000 applied to cash), in the event that money, stocks and other securities are stolen from a client’s account or are put at risk if a brokerage firm fails. Both T.D. Ameritrade and Charles Schwab, members of SIPC, provide supplementary coverage to the basic SIPC coverage. Ameritrade’s coverage, backed by Lloyd’s of London, is an aggregate of up to $250 million, of which $900,000 may be applied to cash, with a limit of $150 million to any one client. Schwab’s coverage, also provided by Lloyd’s of London, is an aggregate of up to $600 million, of which $1 million may be applied to cash, with a limit of $150 million to any one client.

As a part of our daily process, we receive data electronically from each of our custodians. Research is performed on any account that is out of balance and the account is reconciled, so that each client’s balances at their respective custodian are reconciled with the database we use in managing our clients’ portfolios. Quarterly, REDW Stanley provides portfolio reports to our clients, which can be compared to the monthly statements sent by each of our custodians to ensure that all assets owned by our clients are properly reflected on each statement and report.

Capital ConversationsSeptember 2012

Continued...Copyright 2011 REDW Stanley Financial Advisors, LLC. All Rights Reserved. This publication is intended for general informational purposes only.

The information contained does not constitute legal financial, accounting or other professional advice.

Capital ConversationsAnother important consideration is the technology employed by our custodians. We want their technology to be as current as possible, and for each custodian to have a demonstrated history of adopting new technology as needed. Technology can be key to efficient and effective operations, and we look to our custodians to provide the technology that can support our work processes. This way, we can spend more time working with our clients. Technology supports portfolio management, trading, client reports and investment research, and facilitates access to client account information and market data, both to the client and to us. This same technology should provide our clients with web access to their accounts, with the ability to aggregate multiple accounts. Technology should also enable electronic trading, as well as paperless confirmations and statements in addition to printed documentation.

We require our custodians to offer a full range of institutional-caliber financial products and services so that we can meet our clients’ asset needs and requests. These assets can include, but are not limited to stocks, government and corporate bonds, other types of debt instruments, no load mutual funds, warrants, options, alternative investments, derivatives, and a selection of cash equivalent products. Custodians must be able to facilitate the settlement and completion of trades, ensuring that the seller transfers the securities or financial instruments sold to the buyer, and that the buyer transfers the money to the seller. Other services that must be provided by the custodian include the collection of income (dividend and interest payable) produced in the portfolios, dealing with corporate actions such as stocks splits, corporate takeovers, class action suits, and other similar matters.

Our custodians must provide services for reasonable or nominal costs. We are acutely aware that costs of any kind reduce the potential rate of return for our clients. Both of our current custodians charge reasonable transaction fees and do not charge any type of annual fee to our clients or to REDW Stanley to have one or more accounts at their firm. Because we are a fee-only RIA, any transaction fees charged by T.D. Ameritrade or Charles Schwab are retained by the custodian and are not, in any manner, passed on to REDW Stanley. Complying with rules and regulations as enforced by our regulator, the SEC, is extremely important to REDW Stanley, and both of our custodians provide updates to changes on the regulatory front. Both custodians provide web casts with topical ideas, suggestions and solutions to challenges to our practice, including knowledge of industry trends that can affect our business. And both hold annual conferences specifically for RIAs, which provide venues for REDW Stanley team members to meet with other RIAs and industry experts from across the U.S. and internationally, ensuring that we are employing the best practices for our clients.

With T.D. Ameritrade and Charles Schwab, we are confident that we have selected and work with two of the most reliable and responsive custodians in the industry. Working with these two noteworthy custodians contributes to our goal of providing the highest level of unbiased, fee-only service for our clients.

By Laura Hall, CIMA®, AIF® Portfolio Manager/

Chief Trading and Operations Officer

• REDW:In2011,REDWexpandeditsgeographicreachinArizonawhenitopenedthedoorstoitsnewofficespaceinPhoenix.ThisofficeallowedREDWtobetterservetheneedsofitsgrowingclientbaseinArizona.

• TheEconomy:Inthewakeofthefinancialcrisis,firmsbothlargeandsmallfounditdifficulttoborrowmoney.Largebusinesseshavesinceseenborrowingconditionsimprove,butthesamehasnotbeentrueforsmallerfirms.However,creditconditionsforsmallbusinessesmaybeeasing.AccordingtoasurveyconductedbytheNationalFederationofIndependentBusiness,thenetpercentageofsmallbusinessesreportingthatcredithadbecomemoredifficulttoobtainrelativetothepreviousthreemonthshasdeclinedfromitspeakof16%inMay2009to7%inJune2012.Thistrendhasbeenconfirmedbyotherlendingsurveys,andasborrowingconditionsforsmallbusinessescontinuetoimprove,thiseasieraccesstofundingcouldactasatailwindforeconomicgrowth.

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