Do you actually OWN your investments?

https://jbroadbent.substack.com/p/64-unwoke-ep-64-youll-own-nothing

Do you actually OWN your investments?

By Jonathon R. Broadbent, Unwoke Academy l Oct. 23, 2024

In the event of an upset to markets, the answer to that question will likely boil down to how your investments are held and how they’re titled. Don’t assume “Wall Street” is your friend in this.

Many people are familiar with titling a home (if you took a loan and are making payments, yours probably isn’t the only name on the title). However, when it comes to IRA and other types of accounts, it’s assumed that the person who deposited the money is the sole owner and beneficiary. But not so fast… The devil may well be in the details, especially if a “systemic” event happens in financial markets, like the 2008 market collapse.

If you didn’t already know, there are multiple ways to hold investments like mutual funds or stocks. Add to this the somewhat hidden fact that big financial institutions sometimes loan against the accounts under their care. Read on, this may prove VERY important…

The difference between a security and a security entitlement lies in their legal definitions and how they represent ownership and rights within the financial markets. Here’s a breakdown of each:

  • “Security” (This is good, it’s what everyone imagines when they open an account and invest.)
    • A security is a financial instrument that represents ownership (like a stock), a creditor relationship (like a bond), or rights to ownership (like an option).
    • It is the actual asset, such as stocks, bonds, or other financial instruments, that can be traded on financial markets.
    • A person or entity holding a security directly owns the asset and has the corresponding rights, such as voting rights in a company (for stocks) or rights to interest payments (for bonds).
    • This is how a very small number of places hold and title assets; individual accountholders own the assets in their name.
  • “Security Entitlement” (This could spell trouble. Especially if we listen to David Rogers Webb and his book The Great Taking.)
    • A security entitlement is a legal concept that arises when an investor holds securities indirectly, typically through a broker or financial intermediary.
    • Rather than directly owning the security itself, the investor has a claim or interest in the security held in an account with a financial institution (such as a brokerage firm or custodian).
    • The entitlement gives the investor the rights and benefits associated with the underlying security, such as dividends or interest, but the financial institution holds the actual security on the investor’s behalf.
    • Financial institutions like this sort of arrangement because it allows them to use those investments to make extra money, by leveraging the accounts they hold – this is a common but not well known practice.
    • All this is governed by Article 8 of the Uniform Commercial Code (UCC) in the U.S., which outlines the rights of investors who hold securities through intermediaries.
    • The main attribute here is “street name registration” (as your financial institution about this and make notes, or send an email asking how your accounts are held). The key here is that securities are held in the brokerage’s or financial institution’s name (not the client’s). The account is then further “credited” to the client’s account.

An easy way to determine whether your account holds Securities or Security Entitlements is to find out how to write a check to your account. If you write the check to yourself [payable to YOUR NAME], then you own and control the account – you’re the primary or only owner – but if you write the check to a financial institution for the further benefit of (often abbreviated “FBO” which stands for For the Benefit Of) then the chances are good you have Security Entitlements, which means you’re not the only one with rights to those assets.

And now to tie this together with the alarming trend we’ve been reporting on of mass-sameness in investment strategies. There has been an incredible, mostly hidden trend among money managers of migrating investment dollars into relatively few Globalist, mega-large/mega-cap companies. These companies then become over-funded, over-represented in indexes, and may well be a massive bubble. In our view, this is a troubling combination. The answer is to make sure you actually own what you think you own, un-encumbered. This means owning either Real Assets (defined here by Investopedia) or Securities, NOT entitlements. Therein lies the problem; Big-Finance has grown comfortable making extra money off holding accounts in their name. This means that their interests and yours aren’t aligned.




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