Saturday, December 24, 2011

When Will the Wall Street Firm Abuse End?

If this is not proof of a Wall Street firm's shenanigans, then I do not know what is. Wal-Mart Stores, Inc. was sued in the U.S. District Court for the Western District of Missouri over Wal-Mart and certain employees who allegedly violated their fiduciary duties by selecting retail mutual funds as investment options, rather than lower fee institutional class funds. In addition, it was alleged that these same defendants breached their fiduciary duties by failing to disclose certain fund expense and revenue sharing information. In layman's terms, this means that the mutual funds being sold to Wal-Mart employees were loaded with 12b-1 fees that paid the Wall Street firm and its advisors excessive trail commissions.

Unfortunately, today there are a ton of 401(k) and Profit Sharing Plans that do this very same thing. This is your wake up call if you own a business. You cannot do these kind of shenanigans any longer. Every attorney in the country will take notice of this case and brother you better believe it when I say they will be looking at every 401(k) and Profit Sharing Plan that they can find to see similar violations of fiduciary duties. If you have yet to be sued over your 401(k) and Profit Sharing Plan, then get ready. The litigators will find you. All 401(k) and Profit Sharing Plan information is publicly available to anyone. All they have to do is look up your 5500 forms on

If you are a business owner with a 401(k) and Profit Sharing Plan, or 403(b) or 457 Plan, then you better take notice of what I am saying here today. Good practices include:

  • Retaining an investment consultant who can acknowledge ERISA fiduciary status in writing and that this investment consultant be reviewed annually for conflicts of interest;
  • You should make available web-based investment education resources to Plan participants;
  • You should eliminate any investment options that include mutual funds that pay 12b-1 fees, and funds that provide revenue sharing or similar fees to any party at interest, including the Plan's trustee or recordkeeper;
  • You should consider adding passively managed funds as investment options; and
  • You should comply with the Department of Labor's participant disclosure regulations.
There are more important issues than those mentioned here, but this is a good start.

When I was the Branch Manager for Charles Schwab several years ago, I had a retirement plan guy come in to talk to me and my team. He told us how wonderful his firm was and how they could put all these really good mutual funds in the 401(k)'s that they wanted to be the third party administrator on. I asked him how much it costs and he told me that it was all taken care of with revenue sharing and 12b-1 mutual funds. The guy never would tell me or disclose his fiduciary duty to me and my team. This is how these Wall Street types sold the 401(k). They would tell the employer that it "doesn't cost you a thing. It is all internal to the funds." In other words, screw the employees. I never did business with him, because I knew that what they were doing was a clear breach of fiduciary duty. Looks like it is business as usual some eight years later. Nothing much has changed, especially when you have a Wall Street firm in the mix.

If you are a business owner and want to talk about how to protect yourself from breaching your fiduciary duty, then give me a call. If I cannot help you, then I will refer you to someone who can. I promise you it will not be a Wall Street firm.

Wednesday, December 14, 2011

Blinded by Wall Street

A so called "Vice President of Investments" recently responded to an article online trying to state his position as a Wall Street Broker and how he was just as "fiduciary like" as Independent Registered Investment Advisers. What a bunch of baloney! He claimed his advice was suitable and he looked out for his customers. What a joke! Do you realize that most all Wall Street Brokers are Vice Presidents of Investments? This title in and of itself is totally misleading.

Fiduciary like? There is no such thing as "fiduciary like." This shows how blind these Wall Street Brokers are when it comes to doing the right thing. They have actually convinced themselves that selling products from the inventory of their Wall Street brokerage firm is perfectly okay. They have also convinced themselves that selling a client a Variable Annuity in a IRA account that pays them 6 to 8% commission and locks the client in for 10 years or more is perfectly okay. That is instead of opening a regular brokerage IRA account without a 10 year or more penalty for early withdrawal. Further, they convince themselves that it is okay to sell mutual funds that charge a 5.75% sales load, when no load funds are available to them to offer to clients.

A read an article online recently that said over 90% of the Registered Investment Advisers out there today are also affiliated with a Wall Street firm, a Bank or an Insurance Company. This means that there is only 10% of us true fiduciaries out there. So, look out. Nine out of ten people out there today giving financial advice is doing so in their firm's best interest, not yours.

In my humble opinion, the battle the fiduciary standard is going to end with Wall Street brokerage firms, Bank and Insurance Company clients getting the shaft. There is already talk on the street of how the fiduciary standard is going to be watered down to allow the same Wall Street revenue generating brokerage machine to continue. Banks and Insurance Companies will continue business as usual. People will continue to be given financial advice that favors:
  1. The Wall Street firm first, or the Bank or Insurance Company first.
  2. The Wall Street Broker, or excuse me...I meant Vice President of Investments.
  3. I interrupt this list for an important message. I just realized that if you get your advice from a Wall Street firm that is owned by a bank and you are sold a Variable Annuity, then the Wall Street firm, the Bank and the Insurance Company all benefit before you. Yikes!!
  4. Last on the list unfortunately is you.
It astounds me that anyone would ever obtain their investment advice from either a Wall Street firm, a Bank or an Insurance Company when the cards are stacked against them from the get go. Do you get your financial advice from a Wall Street firm, a Bank or an Insurance Company? Why? They do not care about you and they are not on your side. More importantly, they do not do what is in your best interests.

The good news is that there is a better option. Independent Registered Investment Advisers who have no affiliation with a Wall Street firm, a Bank or an Insurance Company. Sadly, we do not have millions of dollars that we take from clients and pay to Congress in order to get our way. We simply just keep plodding along hoping that one day, the people of America will wake up and realize that doing business with an Independent Registered Investment Adviser is the only place to obtain your financial advice.

Keep Your Assets. Take My Advice. Seriously.

Merry Christmas, Happy Hanukkah and Happy New Year. God Bless.