I was at a meeting recently and I had some conversations with some insurance agents, some bank representatives and registered representatives. This was just idle chit chat about what I do and what they do. I was very surprised how brainwashed these people are by their affiliations. They have no clue what it means to be a fiduciary and deliver advice in a client's best interest.
The SEC is currently evaluating how to apply a fiduciary standard to these type of professionals. I can tell you, the SEC is facing an uphill battle.
One of the people I spoke with in my idle chit chat was an insurance agent. I told this person that I recently had a seminar with planning ideas to help seniors qualify for Medicaid Planning and Veterans Benefits. This person's first question was ..."what products do you sell to them?" Those of you who have read my book, or seen my latest brochure will know that insurance agents are compensated by product sales. Unfortunately, this is all they know. They know that they get paid by product sales. When someone asks..."what product do you sell to them?", then that tells me what they focus on with their clients. They focus on themselves. This of course, is contrary to a fiduciary standard of care.
My answer to to this person was that I did not sell products to them, but rather I did what was in their best interest and only charged a fee for my services. This person persisted with...'but, you have to be selling some products. What products are you selling?" I was really taken aback about how the blinders over this person's eyes are affecting their objectivity. I may be reaching a little bit here, but the concept of charging a fee and doing something in the best interest of a client seemed to be so far removed from this person's thinking that it was not even a remote possibility.
Quite frankly, I was astonished. Sadly, most of the people in my business work at banks, insurance companies or Wall Street firms. They have all the marketing dollars and political power. They are so brainwashed into the product sales mentality that they cannot even imagine what it takes to do something in a client's best interest. Like I mentioned earlier, the SEC is facing an uphill battle.
Another person that I chatted with wanted to know if I was in the Financial Planning Association. The FPA is made up of CFP's and other professionals who are mostly people who work at banks, insurance companies and Wall Street firms. Take a guess how excited I would be to run around with a bunch of people like these folks.
This person saw my CFP lapel pin and said that I should join. I then said, "Why?" He said, "because you are a CFP and the FPA is for CFP's." I said to this person, "you are going to have to do better than that." The attorney standing next to me laughed when I said that. This person, who was a bank representative by the way, went on to try and convince me of the wonderful educational opportunities and continuing education available. As a courtesy, I gave this person my business card, but I have to admit that I am kind of like Groucho Marx in this area. I will not join any organization that wants me to join. The truth is the FPA is in decline and they are losing a lot of members each year. Every time I run into one of these people, they are trying to convince me to join the FPA. If it truly was a good organization, then no one would have to recruit for it. This tells me that it is a lobbyist organization with a bunch of fat cat salaried people trying to justify their existence. I will not be giving them any of my money.
The last thing I want to do is go to a meeting where insurance company home office people are telling me how great their products and commissions are for insurance agents.
I am very comfy in my own little world of the fiduciary standard and doing what is in the best interests of my clients, thank you very much.
Later my friends.
Showing posts with label Wall Street. Show all posts
Showing posts with label Wall Street. Show all posts
Wednesday, September 14, 2011
Monday, January 24, 2011
SEC Staff Study on Investment Advisers and Broker-Dealers
Click the link for the Study on Investment Advisers and Broker-Dealers.
http://www.sec.gov/news/studies/2011/913studyfinal.pdf
Everybody has opinions and I am no different. The views expressed herein are the opinions of Rick Johnson.
It appears to me that the SEC Staff is biased toward keeping the status quo. They recommend against eliminating the broker-dealer exclusion from the definition of "investment adviser" in the Advisers Act. They also recommend against applying the duty of care and other requirements of the Advisers Act to broker-dealers. The SEC Staff apparently believes that what registered representatives do is essentially the same thing as what investment adviser representatives do. I for one, beg to differ.
Investment Advice from a Wall Street firm
If you as a client were to walk into a Wall Street firm for investment advice, you will most likely be sold some combination of these products:
Stocks
Mutual Funds
Bonds
Variable Annuities
Unit Investment Trusts
Let me delve a little deeper into why I do not think this is good for investors. Wall Street firms routinely buy large blocks of shares of stock that they in turn sell to their customers. They may have bought the stock that they recommend to you at $30, but sell to you as a recommendation at $35. As an investor, you may be misled into believing that all the Wall Street firm made from the stock recommendation was the $29.95 they charged in trading commissions. Did you know this?
When mutual funds are recommended, in a lot of cases, the Wall Street firm recommends a favorite set of mutual funds. Technically, their compliance department only approves a limited number of mutual fund families that their registered representatives can recommend. Wouldn't you know it, the stock mutual funds that they recommend have a 5.75% sale commission on them.
When a Wall Street firm sells you some bonds, they charge a markup. Legally, they can charge you up to 5% markup on the bond. You as the investor do not see it, because it is built into the price of the bond. For example, if a bond's price is 100 to the Wall Street firm, they may sell it to you at 102.50. The registered representative usually doesn't bother to tell you this when he is recommending it. Most of the time, the registered representative probably does not even know what his Wall Street firm is making on each bond. However, I can guarantee you one thing. They are making money on the bonds they sell to investors.
Variable Annuities carry high commission charges and ten years or more surrender penalties. Oh, I almost forgot. They have high expenses, too. Did you know that you could pay a registered representative 6 to 8% in commissions if you buy a Variable Annuity from them? Did you know that there are Variable Annuities with no sales charges, no surrender penalties and low expenses? I wonder why your Wall Street firm registered representative did not tell you this?
Personally, I cannot stand to see Unit Investment Trusts in an investor's portfolio. Right away, I know that the investor may be locked into this investment for a period of time and there may be significant restrictions on selling the UIT as they are called. Most of these UIT's have a sales commission of 3.95% or so. They may defer some of it, because after all, they know that their investors are locked in to the investment anyway. This does not seem like much of a benefit to investors to me.
Strangely enough, I searched the entire SEC Staff Study and could not find one reference to quotas. Each Wall Street firm's registered representative has what is known as a revenue quota, or "nut to crack." This was an egregious omission in my opinion. Most of the large Wall Street firms require their registered representatives to produce $250,000 to $300,000 in revenue for the firm. How do they do this? By selling investors stocks, mutual funds, bonds, Variable Annuities and Unit Investment Trusts. It is really very simple to understand. Registered representatives for Wall Street firms have to produce revenue to keep their jobs. As a result, they sell products that make them the most revenue, not because they want to, but because they have to, otherwise they risk losing their job. Before you start feeling sorry for them, ask yourself "How does selling me products that pay high commissions benefit me and my goals, needs and objectives?" The truth is that it does not benefit you. It benefits the Wall Street firm first and their registered representative second. Investors are third on that list, unfortunately.
The last sentence of the Executive Summary of this SEC Staff Study says, "The Staff developed its recommendations with a view toward minimizing cost and disruption and assuring that retail investors continue to have access to various investment products and choice among compensation schemes to pay for advice." If you analyze this statement with with I just explained above you will see that the SEC Staff believes it is okay for you to be sold various investment products, (described above) choice among compensation schemes to pay for advice. (I think they mean commissions and fees.) I am curious as to their use of the word "schemes" in that sentence.
They are right about the investors having a choice. You can refuse to do business with any Wall Street firm whose first priority is themselves. This includes Banks who own most Wall Street firms today, too.
http://www.sec.gov/news/studies/2011/913studyfinal.pdf
Everybody has opinions and I am no different. The views expressed herein are the opinions of Rick Johnson.
It appears to me that the SEC Staff is biased toward keeping the status quo. They recommend against eliminating the broker-dealer exclusion from the definition of "investment adviser" in the Advisers Act. They also recommend against applying the duty of care and other requirements of the Advisers Act to broker-dealers. The SEC Staff apparently believes that what registered representatives do is essentially the same thing as what investment adviser representatives do. I for one, beg to differ.
Investment Advice from a Wall Street firm
If you as a client were to walk into a Wall Street firm for investment advice, you will most likely be sold some combination of these products:
Stocks
Mutual Funds
Bonds
Variable Annuities
Unit Investment Trusts
Let me delve a little deeper into why I do not think this is good for investors. Wall Street firms routinely buy large blocks of shares of stock that they in turn sell to their customers. They may have bought the stock that they recommend to you at $30, but sell to you as a recommendation at $35. As an investor, you may be misled into believing that all the Wall Street firm made from the stock recommendation was the $29.95 they charged in trading commissions. Did you know this?
When mutual funds are recommended, in a lot of cases, the Wall Street firm recommends a favorite set of mutual funds. Technically, their compliance department only approves a limited number of mutual fund families that their registered representatives can recommend. Wouldn't you know it, the stock mutual funds that they recommend have a 5.75% sale commission on them.
When a Wall Street firm sells you some bonds, they charge a markup. Legally, they can charge you up to 5% markup on the bond. You as the investor do not see it, because it is built into the price of the bond. For example, if a bond's price is 100 to the Wall Street firm, they may sell it to you at 102.50. The registered representative usually doesn't bother to tell you this when he is recommending it. Most of the time, the registered representative probably does not even know what his Wall Street firm is making on each bond. However, I can guarantee you one thing. They are making money on the bonds they sell to investors.
Variable Annuities carry high commission charges and ten years or more surrender penalties. Oh, I almost forgot. They have high expenses, too. Did you know that you could pay a registered representative 6 to 8% in commissions if you buy a Variable Annuity from them? Did you know that there are Variable Annuities with no sales charges, no surrender penalties and low expenses? I wonder why your Wall Street firm registered representative did not tell you this?
Personally, I cannot stand to see Unit Investment Trusts in an investor's portfolio. Right away, I know that the investor may be locked into this investment for a period of time and there may be significant restrictions on selling the UIT as they are called. Most of these UIT's have a sales commission of 3.95% or so. They may defer some of it, because after all, they know that their investors are locked in to the investment anyway. This does not seem like much of a benefit to investors to me.
Strangely enough, I searched the entire SEC Staff Study and could not find one reference to quotas. Each Wall Street firm's registered representative has what is known as a revenue quota, or "nut to crack." This was an egregious omission in my opinion. Most of the large Wall Street firms require their registered representatives to produce $250,000 to $300,000 in revenue for the firm. How do they do this? By selling investors stocks, mutual funds, bonds, Variable Annuities and Unit Investment Trusts. It is really very simple to understand. Registered representatives for Wall Street firms have to produce revenue to keep their jobs. As a result, they sell products that make them the most revenue, not because they want to, but because they have to, otherwise they risk losing their job. Before you start feeling sorry for them, ask yourself "How does selling me products that pay high commissions benefit me and my goals, needs and objectives?" The truth is that it does not benefit you. It benefits the Wall Street firm first and their registered representative second. Investors are third on that list, unfortunately.
The last sentence of the Executive Summary of this SEC Staff Study says, "The Staff developed its recommendations with a view toward minimizing cost and disruption and assuring that retail investors continue to have access to various investment products and choice among compensation schemes to pay for advice." If you analyze this statement with with I just explained above you will see that the SEC Staff believes it is okay for you to be sold various investment products, (described above) choice among compensation schemes to pay for advice. (I think they mean commissions and fees.) I am curious as to their use of the word "schemes" in that sentence.
They are right about the investors having a choice. You can refuse to do business with any Wall Street firm whose first priority is themselves. This includes Banks who own most Wall Street firms today, too.
Friday, June 25, 2010
FinReg or The American Financial Stability Act of 2010
We are almost there. Everyone has been waiting for the final version of The American Financial Stability Act of 2010 to become law. Shortly, we will be able to see it for ourselves and look for how it will impact the financial industry.
The early word is that the authority to require the fiduciary standard for broker/dealers and investment advisers will be granted to the U.S. Securities and Exchange Commission (SEC). The current status of the fiduciary standard is that investment advisers (like my firm) are already subject to the fiduciary standard. It is the broker/dealers (Wall Street firms, Banks & Insurance Companies) who are not subject to the fiduciary standard.
The SEC will have to wait six months until a study is done. This is really an opportunity for Wall Street firms, Banks and Insurance Companies to fight it and or, time to get prepared for it. The law is supposed to give the SEC the power to implement a rule related to the fiduciary standard. The SEC has commissioners who vote on such any rules, if presented. So, there is no guarantee that after the results of the study, the SEC will make such a rule. FinReg only gives them the power to make such a rule, I believe. It doesn't necessarily make it etched in stone. Also, they normally put proposed rules out for a period of time before implementation and allow people to comment on them. Then, after the comment period, the SEC reviews the comments and determines the impact that making the final rule may have on the industry.
I wonder, if it is easier for Wall Street firms, Banks and Insurance Companies to fight the implementation of an SEC rule such as the fiduciary standard, as opposed to a law passed by Congress. There is a major difference if you catch my drift. It would be much tougher to overturn legislation, in my opinion. Do not think for a minute that Wall Street firms, Banks and Insurance Companies will not be flooding the SEC with comments on any proposed rule on the fiduciary standard. It is obvious they do not want it.
The main thing you need to understand is that registered investment advisers are already subject to the fiduciary standard and they (we) only wear one hat. So, if you see a lot of resistance to the fiduciary standard in the next six months, keep in mind that is not coming from registered investment advisers.
As I have blogged about many times before, the best financial advisor to hire is an Independent Registered Investment Adviser with no Wall Street firm, Bank or Insurance Company broker/dealer affiliations. Like me.
The early word is that the authority to require the fiduciary standard for broker/dealers and investment advisers will be granted to the U.S. Securities and Exchange Commission (SEC). The current status of the fiduciary standard is that investment advisers (like my firm) are already subject to the fiduciary standard. It is the broker/dealers (Wall Street firms, Banks & Insurance Companies) who are not subject to the fiduciary standard.
The SEC will have to wait six months until a study is done. This is really an opportunity for Wall Street firms, Banks and Insurance Companies to fight it and or, time to get prepared for it. The law is supposed to give the SEC the power to implement a rule related to the fiduciary standard. The SEC has commissioners who vote on such any rules, if presented. So, there is no guarantee that after the results of the study, the SEC will make such a rule. FinReg only gives them the power to make such a rule, I believe. It doesn't necessarily make it etched in stone. Also, they normally put proposed rules out for a period of time before implementation and allow people to comment on them. Then, after the comment period, the SEC reviews the comments and determines the impact that making the final rule may have on the industry.
I wonder, if it is easier for Wall Street firms, Banks and Insurance Companies to fight the implementation of an SEC rule such as the fiduciary standard, as opposed to a law passed by Congress. There is a major difference if you catch my drift. It would be much tougher to overturn legislation, in my opinion. Do not think for a minute that Wall Street firms, Banks and Insurance Companies will not be flooding the SEC with comments on any proposed rule on the fiduciary standard. It is obvious they do not want it.
The main thing you need to understand is that registered investment advisers are already subject to the fiduciary standard and they (we) only wear one hat. So, if you see a lot of resistance to the fiduciary standard in the next six months, keep in mind that is not coming from registered investment advisers.
As I have blogged about many times before, the best financial advisor to hire is an Independent Registered Investment Adviser with no Wall Street firm, Bank or Insurance Company broker/dealer affiliations. Like me.
Friday, May 28, 2010
The Critical Difference - What It Means For Someone to Work in Your Best Interests
The Critical Difference of Working With Registered Representatives, Bank Reps, Insurance Agents and Independent Registered Investment Advisers - What It Means For Someone to Work in Your Best Interests
Most of America has money in retirement plans, investment accounts and insurance products. Think about it. If you go see a registered representative at a brokerage firm, or at a bank, or an insurance agent, no matter what level of experience or designations that they hold, odds are that they will want to sell you something. The reason for this is that they have a revenue quota to keep their office perks and their job. If they fail to reach their revenue quota, then they can lose their job. If you are sold products that benefit these registered representatives and their firms, then how does that help you? The truth is that your needs are always way down on the totem pole with this business model of Banks, Insurance Companies and Wall Street firms.
Independent Registered Investment Advisers do what is in your best interest. Not all of them will do it, however. How many Independent Registered Investment Advisers will work with you knowing that you do not have $500,000 to invest? If you simply tell them that you need help getting out of debt, then watch as they tell you about their account minimum of $500,000 and let you walk out the door.
A lot of these Independent Registered Investment Advisers only want to work with customers who have money and lots of it. The thinking goes it is better to have 1 person with $1,000,000 than 10 people with $100,000 each. It is easier to manage one person as opposed to ten people. Most all Independent Registered Investment Advisers work from this business model, with the exception of one that I know of and that is me.
The Taking Control Plan is how you should run your financial life. If you start at the right side of this Money Flow, then you are benefiting the firm selling you products. If on the other hand, you take my advice and start at the left side of this Money Flow, then you are benefiting you and your family.
This should be an "ah ha" moment for you. The light bulb should be shining bright now.
If you build the solid foundation first, by paying your everyday expenses, controlling your discretionary spending with the Under Control Accounts, then setting up Individual Savings Accounts for specific short term goals like vacations or home improvements, then you can begin to build a bigger emergency fund. In today's environment, forget 3 to 6 months of expenses. Today, I recommend 9 to 12 months of expenses in case of job loss, accidents or medical issues that would cause a longer strain on your financial situation. Once you have tackled all of these, then and only then should you move on to fully funding your retirement plans and taking excess cash flow and adding it to investment accounts.
Wall Street firms, banks and insurance companies want you to buy their stuff which means starting on the right side of this Money Flow. How does this help you if you have debt, your discretionary spending is not under control and you have no money saved for vacations? You have to be smart today. Really smart.
With The Taking Control Plan, you benefit first. Isn't this truly advice in your best interests? This is what I do for you.
Not me first, but you first.
Most of America has money in retirement plans, investment accounts and insurance products. Think about it. If you go see a registered representative at a brokerage firm, or at a bank, or an insurance agent, no matter what level of experience or designations that they hold, odds are that they will want to sell you something. The reason for this is that they have a revenue quota to keep their office perks and their job. If they fail to reach their revenue quota, then they can lose their job. If you are sold products that benefit these registered representatives and their firms, then how does that help you? The truth is that your needs are always way down on the totem pole with this business model of Banks, Insurance Companies and Wall Street firms.
Independent Registered Investment Advisers do what is in your best interest. Not all of them will do it, however. How many Independent Registered Investment Advisers will work with you knowing that you do not have $500,000 to invest? If you simply tell them that you need help getting out of debt, then watch as they tell you about their account minimum of $500,000 and let you walk out the door.
A lot of these Independent Registered Investment Advisers only want to work with customers who have money and lots of it. The thinking goes it is better to have 1 person with $1,000,000 than 10 people with $100,000 each. It is easier to manage one person as opposed to ten people. Most all Independent Registered Investment Advisers work from this business model, with the exception of one that I know of and that is me.
The Taking Control Plan is how you should run your financial life. If you start at the right side of this Money Flow, then you are benefiting the firm selling you products. If on the other hand, you take my advice and start at the left side of this Money Flow, then you are benefiting you and your family.
This should be an "ah ha" moment for you. The light bulb should be shining bright now.
If you build the solid foundation first, by paying your everyday expenses, controlling your discretionary spending with the Under Control Accounts, then setting up Individual Savings Accounts for specific short term goals like vacations or home improvements, then you can begin to build a bigger emergency fund. In today's environment, forget 3 to 6 months of expenses. Today, I recommend 9 to 12 months of expenses in case of job loss, accidents or medical issues that would cause a longer strain on your financial situation. Once you have tackled all of these, then and only then should you move on to fully funding your retirement plans and taking excess cash flow and adding it to investment accounts.
Wall Street firms, banks and insurance companies want you to buy their stuff which means starting on the right side of this Money Flow. How does this help you if you have debt, your discretionary spending is not under control and you have no money saved for vacations? You have to be smart today. Really smart.
With The Taking Control Plan, you benefit first. Isn't this truly advice in your best interests? This is what I do for you.
Not me first, but you first.
Monday, April 19, 2010
How FINRA Registered Representatives Steal Your Money
It is now gettting to the point where I can almost guess how a typical Wall Street firm invests their client's accounts. It is patently obvious that they invest client's money in a manner that always benefits the firm and the FINRA regulated registered representative. Never does it benefit the client, in my opinion.
A case in point. I just received an account transferred from a major Wall Street firm. In this account, there were 7 mutual funds. On the surface you might think this was properly diversified if you only go by the names of the funds. The asset classes involved were:
Large Growth
Large Value
Small Cap Growth
Small Cap Value
High Yield Bond
Core Bond
International Value
Health Care Sector
There are however, a couple of problems. FINRA says that if you invest in mutual funds, that you should invest all the proceeds within one mutual fund family in order to get the commission breakpoints for the client. The breakpoints means that the client can pay less in commissions if they invest in one mutual fund family.
In this case, we have 7 mutual funds and 6 different mutual fund families. The reason this was done is because the FINRA regulated registered representative wanted to earn the highest possible commission that they could. Therefore, the way they invested this partcular client's money, the FINRA regulated registered representative earned the full 5.75% in commission on each mutual fund. If this FINRA regulated registered representative, instead would have put them all with one family, then they would have earned significantly less commission.
This is so typical and something that I see so often it is criminal in my opinion.
The other problem that I have with this is that the Wall Street firms have commission production quotas for all of their FINRA regulated registered representatives. No doubt, this client was the victim of someone trying to meet their Wall Street firm's quota.
The problem with quotas and revenue production requirements are that they benefit the Wall Street firm first, the FINRA regulated registered representative second and supposedly the client last. In this case however, this account was very poorly diversified and heavily weighted to equities, so it was of no benefit to the client in my opinion.
As readers of my book know, if you have 80 -100% invested in equities, then you can be assured that you will have significant volatility and a portfolio primed to take a big fall. Even after the recent comeback of the equities market, this account was still down almost 30%. Thirty percent! Like I said, this kind of advice is criminal in my opinion.
While this client was with this Wall Street firm, there is no doubt that churning inside the account occurred. Churning is where one 5.75% mutual fund was sold and another one from a different mutual fund family was bought. The purpose of course was to generate more commissions for the Wall Street firm and the FINRA regulated registered representative.
Welcome to the world of SUITABILITY. According to FINRA, this is all perfectly acceptable and meets their definition of SUITABILITY. If you are doing business with a Wall Street firm and a FINRA registered representative, then you can bet your bottom dollar you will be low man on the totem pole.
There is a better way. Work with independent registered investment adviser firms whose investment adviser representatives are subject to a FIDUCIARY standard. A FIDUCIARY standard is where the investment adviser discloses all conflicts of interests in writing, in advance and does things in your best interest. Wall Street firms have the money, so they blanket the airwaves with touchy feelly ads trying to convince you that they will look out for you. Sadly, most of America falls for these ads and does business with these Wall Street firms at a significant cost to their financial future.
No dual registered representatives either. A Wall Street firm's FINRA regulated registered representative may tell you that he or she is also an investment adviser representative for a registered investment adviser. However, this is a trap. The indisputable fact is that it makes no difference whether a FINRA regulated registered representative is also an investment adviser representative for a registered investment adviser. The reason is that these people still have commission and revenue quotas. They still have to meet their quotas to keep their job. Once again, this means the Wall Street firm benefits first, the FINRA regulated registered representative and dually registered investment adviser representative benefits second and you, the poor client last. My point is the client does not benefit at all by working with these Wall Street firms.
You need to get out while the getting is good. Move to a totally independent registered investment adviser firm with no Wall Street firm affiliation. You will be glad that you did.
A case in point. I just received an account transferred from a major Wall Street firm. In this account, there were 7 mutual funds. On the surface you might think this was properly diversified if you only go by the names of the funds. The asset classes involved were:
Large Growth
Large Value
Small Cap Growth
Small Cap Value
High Yield Bond
Core Bond
International Value
Health Care Sector
There are however, a couple of problems. FINRA says that if you invest in mutual funds, that you should invest all the proceeds within one mutual fund family in order to get the commission breakpoints for the client. The breakpoints means that the client can pay less in commissions if they invest in one mutual fund family.
In this case, we have 7 mutual funds and 6 different mutual fund families. The reason this was done is because the FINRA regulated registered representative wanted to earn the highest possible commission that they could. Therefore, the way they invested this partcular client's money, the FINRA regulated registered representative earned the full 5.75% in commission on each mutual fund. If this FINRA regulated registered representative, instead would have put them all with one family, then they would have earned significantly less commission.
This is so typical and something that I see so often it is criminal in my opinion.
The other problem that I have with this is that the Wall Street firms have commission production quotas for all of their FINRA regulated registered representatives. No doubt, this client was the victim of someone trying to meet their Wall Street firm's quota.
The problem with quotas and revenue production requirements are that they benefit the Wall Street firm first, the FINRA regulated registered representative second and supposedly the client last. In this case however, this account was very poorly diversified and heavily weighted to equities, so it was of no benefit to the client in my opinion.
As readers of my book know, if you have 80 -100% invested in equities, then you can be assured that you will have significant volatility and a portfolio primed to take a big fall. Even after the recent comeback of the equities market, this account was still down almost 30%. Thirty percent! Like I said, this kind of advice is criminal in my opinion.
While this client was with this Wall Street firm, there is no doubt that churning inside the account occurred. Churning is where one 5.75% mutual fund was sold and another one from a different mutual fund family was bought. The purpose of course was to generate more commissions for the Wall Street firm and the FINRA regulated registered representative.
Welcome to the world of SUITABILITY. According to FINRA, this is all perfectly acceptable and meets their definition of SUITABILITY. If you are doing business with a Wall Street firm and a FINRA registered representative, then you can bet your bottom dollar you will be low man on the totem pole.
There is a better way. Work with independent registered investment adviser firms whose investment adviser representatives are subject to a FIDUCIARY standard. A FIDUCIARY standard is where the investment adviser discloses all conflicts of interests in writing, in advance and does things in your best interest. Wall Street firms have the money, so they blanket the airwaves with touchy feelly ads trying to convince you that they will look out for you. Sadly, most of America falls for these ads and does business with these Wall Street firms at a significant cost to their financial future.
No dual registered representatives either. A Wall Street firm's FINRA regulated registered representative may tell you that he or she is also an investment adviser representative for a registered investment adviser. However, this is a trap. The indisputable fact is that it makes no difference whether a FINRA regulated registered representative is also an investment adviser representative for a registered investment adviser. The reason is that these people still have commission and revenue quotas. They still have to meet their quotas to keep their job. Once again, this means the Wall Street firm benefits first, the FINRA regulated registered representative and dually registered investment adviser representative benefits second and you, the poor client last. My point is the client does not benefit at all by working with these Wall Street firms.
You need to get out while the getting is good. Move to a totally independent registered investment adviser firm with no Wall Street firm affiliation. You will be glad that you did.
Thursday, February 18, 2010
The Johnson Amendment
No. Not this Johnson. Senator Tim Johnson, a Republican from South Dakota who has put forth an amendment to peform a study on the Fiduciary Duty. An 18 month study no less.
Didn't the SEC already do a study on the fiduciary issue called the Rand Report? As a matter of fact they did in 2008. A lot of good it did as we all know by now.
Once again, the consumers of America are getting pushed aside due to political posturing on both sides of the isle. Get this people. Wall Street has all the money to pay for lobbyists and consumers do not. Therefore, it would take "an act of Congress" to change the status quo in Washington, D.C. right now. I am not holding my breath. They are not going to pass any meaningful legislation around fiduciary duty protections for consumers. As I stated in a prior post, as long as you have revenue quota requirements from Wall Street firms, you can never have a fiduciary duty for consumers. It is simply impossible. There is no way you can argue the point otherwise.
If you are a consumer, then do not expect much to happen in your favor. Unless of course you do business with a financial advisor who really does things in your best interests and has no relationship whatsoever with a Wall Street or FINRA firm. These fine folks are called Registered Investment Advisers.
Didn't the SEC already do a study on the fiduciary issue called the Rand Report? As a matter of fact they did in 2008. A lot of good it did as we all know by now.
Once again, the consumers of America are getting pushed aside due to political posturing on both sides of the isle. Get this people. Wall Street has all the money to pay for lobbyists and consumers do not. Therefore, it would take "an act of Congress" to change the status quo in Washington, D.C. right now. I am not holding my breath. They are not going to pass any meaningful legislation around fiduciary duty protections for consumers. As I stated in a prior post, as long as you have revenue quota requirements from Wall Street firms, you can never have a fiduciary duty for consumers. It is simply impossible. There is no way you can argue the point otherwise.
If you are a consumer, then do not expect much to happen in your favor. Unless of course you do business with a financial advisor who really does things in your best interests and has no relationship whatsoever with a Wall Street or FINRA firm. These fine folks are called Registered Investment Advisers.
Friday, January 22, 2010
Same Old Song
The Democratic party received a stunning wake up call this week when Scott Brown won election to the U.S. Senate. However, I am dismayed that we are hearing the same old song. When Democrats do not like something, they vilify it. They disparage it. They throw insults. Those who do not follow their liberal agenda are attacked over and over again.
Today's speech by the President fit the Democratic playbook to a "T." He attacked the big banks as those who caused the problem. He is going after them to make sure that we will not have the "too big to fail" problem again. On the surface this sounds fair, but if you peel back the onion a little, then you will find that it is superficial.
What I mean is...if the government doesn't step in and prop up the banks the next time they do something "stupid," as the President put it, then market forces will solve the problem.
Do not get me wrong. I am not a big fan of Wall Street firms. However, there is plenty of blame to go around here. This is exactly what the Democrats like to do, play the blame game, instead of accept responsibility for their own actions. The Democrats are the ones who passed the legislation forcing banks to accept mortgages from people who could not afford them. Somehow, they have skirted responsibility for that major snafu.
I truly believe that the Democrats are now attacking the big banks, because it deflects criticism away from themselves. They know that most Americans do not have a very high opinion of Wall Street banks. Therefore, in their effort to try and shore up support for the Democratic Party, they trot out the same old song. Make someone or some group your enemy, then attack, vilify and disparage them.
If I could give some political advice to the people advising the Democrats, then I would simply say...
"It is jobs and the economy stupid."
Today's speech by the President fit the Democratic playbook to a "T." He attacked the big banks as those who caused the problem. He is going after them to make sure that we will not have the "too big to fail" problem again. On the surface this sounds fair, but if you peel back the onion a little, then you will find that it is superficial.
What I mean is...if the government doesn't step in and prop up the banks the next time they do something "stupid," as the President put it, then market forces will solve the problem.
Do not get me wrong. I am not a big fan of Wall Street firms. However, there is plenty of blame to go around here. This is exactly what the Democrats like to do, play the blame game, instead of accept responsibility for their own actions. The Democrats are the ones who passed the legislation forcing banks to accept mortgages from people who could not afford them. Somehow, they have skirted responsibility for that major snafu.
I truly believe that the Democrats are now attacking the big banks, because it deflects criticism away from themselves. They know that most Americans do not have a very high opinion of Wall Street banks. Therefore, in their effort to try and shore up support for the Democratic Party, they trot out the same old song. Make someone or some group your enemy, then attack, vilify and disparage them.
If I could give some political advice to the people advising the Democrats, then I would simply say...
"It is jobs and the economy stupid."
Wednesday, October 28, 2009
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.
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.
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