Wednesday, October 28, 2009

Why Broker/Dealers Can Never Be Fiduciaries

I suppose with this new law being worked on by the House Financial Services Committee that this will open the flood gates for financial advisers who want to do want is in the best interest of the client. In my prior post, I show the one quote that will kill it for consumers.

Let us assume that I want to go to work for a major broker/dealer. I would name one but who knows what they are calling themselves these days. I cannot keep up with all the name changes and mergers. Back to my premise of wanting to go to work for one of these firms. (Why, I do not know.) I read the Investor Protection Act of 2009 and notice that I can finally do what is in the best interest of the client. So, when that mean old branch manager tells me that I have to produce $300,000 in gross revenue in order to keep my job, all that I have to do is remind him that that is not in the best interest of my clients. The branch manager will not be able to touch me. I can keep my job even if I only produce $30,000 in revenue. After all, a production quota is in the best interest of the firm, not the client. Therefore, Mr. Branch Manger, you can take that production requirement and stick it.

Now, do you really believe that broker/dealers are going to dispense with revenue production requirements? Neither do I.

You cannot have revenue production requirements and do what is in the best interest of the client. Period.

This is why the Investor Protection Act of 2009 is a bunch of bunk and all a show. I can see loophole after loophole in it. The stupid bill conflicts itself, saying one thing and contradicting it later. Obviously, they have not read this bill either.

The broker/dealers have won, yet again. Proof positive that Congress does whatever Wall Street wants them to do. After all, that is where the money is.

I say vote them all out. Let's get someone in Washington who can read!

Broker Dealers win the Lobbying War - Consumers Lose

The House Bill known as the Investor Protection Act of 2009 has been watered down as feared. The Broker/Dealers and Wall Street with all their lobbying money have won the war.

Here is a portion of the bill:

"The receipt of compensation based on commission shall not, in and of itself, be considered a violation of such standard applied to a broker or dealer."

So, what they are saying is that as long as you charge 5.75% commission to your client and you tell them, then as an adviser, you have nothing to worry about. You will have complied with the law. The fact that you are selling them some piece of crap investment does not matter.

Sorry consumers. You lose again to Wall Street.

Friday, October 2, 2009

FINRA Special Committee Report

The Special Committee that FINRA put in place to review their failures related to the Stanford and Madoff cases is now available for download. You can get it here:

Here is a quote from the Executive Summary:

"FINRA’s examinations of the Madoff and Stanford firms did not uncover these frauds."

Lately, I have been jumping up and down over FINRA's failures. In this report, they actually claim no knowledge of Madoff being a registered investment adviser firm. Their reasoning was that Madoff claimed to have no customers, so there was nothing to examine. Madoff made FINRA examiners believe that he was only operating as a trading and market making firm.

Frankly, I find it hard to believe that everyone at FINRA can lay claim to the fact that Bernard Madoff did not have any clients as far as FINRA knew. It was common knowledge that Bernard Madoff and his wife often attended private parties of the rich and famous at which he solicited clients. Ask Donald Trump if he was ever solicited. It defies logic that FINRA examiners who were well entrenched examining multiple New York broker dealers were not aware of Bernard Madoff having clients. This simply does not compute.

Another quote from the report:

"FINRA examiners did not have direct access to the Madoff firm’s IARD entries."

Here again, FINRA is trying to bolster their position that they did not have access to Bernard Madoff Investment Securities LLC, the registered investment adviser firm. I found a FINRA Broker Check report on Bernard Madoff Investment Securities LLC. Here it is: FINRA Broker Check Report.htm

Open this report up and look at the bottom of the far left column on page 3. It says:

"This firm is a brokerage firm and an investment adviser firm. For more information about investment adviser firms, visit the SEC's Investment Adviser Public Disclosure website at ."

Wait a minute. I am going crazy here or what? Did the Special Committee Report from FINRA not say that they did not know that Bernard Madoff Investment Securities LLC was a registered investment adviser? If what they say is true, then why does the FINRA Broker Check report on the firm, (not the person) Bernard Madoff Investment Securities LLC say that they know he is a registered investment adviser firm. It is right there in black and white.

Interestingly though, there is no FINRA Broker Check on Bernard Madoff the person. Normally, a record of a registered principal of a broker dealer is on the FINRA Broker Check site for two years. Where oh where did Bernie's FINRA Broker Check report go?

This brings me to another point that I reiterated before about the gaps in the FINRA Broker Check system. After two years, if you are working for a registered investment adviser firm and not a broker dealer, then there is not a record that you ever existed in the FINRA Broker Check system. Not only that, if you had your FINRA registered securities licenses suspended and it has also been more than two years, then there is no record in the FINRA Broker Check system. None.

My question is why was there ever such a huge loophole which is totally against the investing public? Supposedly, FINRA is "thinking" about correcting this gap.

Isn't it funny how a few weeks prior to the release of this Special Committee Report that FINRA is all over the airwaves with a commercial on how they are protecting investors? I know what they are doing. I have seen this public relations game plan before today used by other firms. Banks use this strategy all the time. When bad PR is coming out, then you blast the airwaves with warm and fuzzy commercials intent on softening the backlash against the firm.

The question you feel better about FINRA watching out for you as an investor?

I for one do not.