It breaks my heart when I see people getting taken advantage of by registered representatives (RR) and insurance agents. Especially, the elderly. I had a prospective client come in and I reviewed their (I hate to even say this) portfolio. Forty percent of their portfolio was in Non-Publicly Traded REIT's. Readers of this blog know how I feel about these (again, I hate to even say this) investments. Of course this is what the registered representative (RR) had sold the client. When an RR puts people in these Non-Publicly Traded REIT's, it is out of pure greed. These investments pay 7 to 10% in commission to the RR while locking in the client for 10 to 12 years or more. Apparently, this RR sees no problem in selling someone in their eighties a non-liquid investment that may or may not give them their money back before they turn 90 something. Nor does this RR see any problem with locking up 40% of an elderly client's money for 10 - 12 years. Is steam coming out of your ears? It is mine.
I thought that I would look up the background of this RR on the FINRA Broker Check site. Seems like he had a complaint for selling...guess what? You guessed it...Non-Publicly Traded REIT's. As luck would have it, he won the complaint against that client by saying that he had three meetings with that client where he explained the risks and that client knew and signed off on the risks. You see this is how Suitability in the world of Wall Street broker-dealers works. RR get away with this kind of behavior all the time.
But wait, it gets worse. I have not told you about the insurance agent and their antics yet. The rest of this prospective client's portfolio was in...guess what? You guessed it...Annuities. Several of these annuities, I know for a fact, pay 10% commissions to the insurance agent and have 14 year surrender charges for the prospective client. So, I am looking at this situation and I see the whole portfolio locked up for between 10 to 14 years for someone in their eighties. Insurance agents are subject to similar Suitability rules. As long as the prospective client is explained the risks and signs off on the risks, then this is perfectly legal to do. Legal maybe, but ethical, no stinking way.
So, I carried my background search a little further. I decided to look up this insurance agent's background. Seems like we have a few issues with this (dare I say it) professional. Apparently, this person had their securities licensed revoked and also had served two years probation on their insurance license for...guess what? Right again. Complaints about selling annuities.
This prospective client had paid roughly $60,000 in commissions to these two professionals.
I know what you may be thinking, but this kind of activity is so common amongst RR's and insurance agents that it is not worth complaining about it. Think about it this way. If each of them are making $30,000 off of this person, then they are probably doing the same with everyone. Therefore, the likelihood of them making several hundred thousand dollars a year is a very high possibility. As a result, they can easily pay for their legal defense to fight any complaints. This would just be a cost of doing business.
Like my title says...sad, but true. With a caveat from me, don't let this happen to you or someone you know. Do not do business with banks, insurance agents or Wall Street firms. Their first priority is to generate commission revenue for themselves. Clients are of little concern.
Showing posts with label registered representatives. Show all posts
Showing posts with label registered representatives. Show all posts
Monday, October 3, 2011
Wednesday, June 29, 2011
Remember When I Said...
Remember when I said not to buy Non-Public REIT's? Once again, yours truly has proven without a shadow of a doubt that Non-Publicly Traded REIT's have several issues and deserve being on my Do Not Buy List.
Here is an article link from today's Wall Street Journal proving my point.
http://online.wsj.com/article/SB10001424052702303627104576414132610932502.html?mod=WSJ_hpp_MIDDLE_Video_Third
What disturbs me is they always seem to find someone who put in a lot of money into these investments. This particular couple, bless their heart, put in $200,000. Unfortunately, according to the article, this represented a substantial portion of their savings. If only they had read my book, Keep Your Assets. Take My Advice., then they would have known not to ever invest in Non-Publicly Traded REIT's in the first place, especially for retired people with no working income opportunities any more. Further, they would have known not to put more than 20% into any one investment. Apparently, they put way more than 20% into this investment.
The problem here is the business model of FINRA broker/dealers. They are in business to:
I keep trying to hammer these three points home. Why? The Wall Street Journal article's last paragraph is telling. These are the quotes from the investor:
"I should know better," he said. "I more or less relied on what the investment people were telling me."
These FINRA registered representatives are only giving advice based on their business model and their priorities listed above. This was all perfectly legal, because these FINRA registered representatives have this "suitability" loophole where they can do this all day long.
Why people do a nickel's worth of business with FINRA brokerage firms and their FINRA registered representatives is beyond me. Especially when an independent registered investment adviser firm will do things in a client's best interest, and who has a fiduciary liability to give their advice in a client's best interest.
Are you learning anything yet? I hope so.
Here is an article link from today's Wall Street Journal proving my point.
http://online.wsj.com/article/SB10001424052702303627104576414132610932502.html?mod=WSJ_hpp_MIDDLE_Video_Third
What disturbs me is they always seem to find someone who put in a lot of money into these investments. This particular couple, bless their heart, put in $200,000. Unfortunately, according to the article, this represented a substantial portion of their savings. If only they had read my book, Keep Your Assets. Take My Advice., then they would have known not to ever invest in Non-Publicly Traded REIT's in the first place, especially for retired people with no working income opportunities any more. Further, they would have known not to put more than 20% into any one investment. Apparently, they put way more than 20% into this investment.
The problem here is the business model of FINRA broker/dealers. They are in business to:
- Generate revenue for the brokerage firm. Did I say this was this first priority? Well, if I did not, it is worth repeating. Their first priority is to generate revenue for the brokerage firm.
- Generate revenue for the FINRA registered representative. Notice the first two choices neglect the client or investor.
- Last but apparently least is the client or investor.
I keep trying to hammer these three points home. Why? The Wall Street Journal article's last paragraph is telling. These are the quotes from the investor:
"I should know better," he said. "I more or less relied on what the investment people were telling me."
These FINRA registered representatives are only giving advice based on their business model and their priorities listed above. This was all perfectly legal, because these FINRA registered representatives have this "suitability" loophole where they can do this all day long.
Why people do a nickel's worth of business with FINRA brokerage firms and their FINRA registered representatives is beyond me. Especially when an independent registered investment adviser firm will do things in a client's best interest, and who has a fiduciary liability to give their advice in a client's best interest.
Are you learning anything yet? I hope so.
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.
Tuesday, January 26, 2010
Remember When I Said...
In a prior blog post, I listed my Do Not Buy List of products typically sold by broker/dealers and their registered representatives, but sometimes sold by unscrupulous investment advisors and non-registered people purporting to be investment advisors. The main reason that they sell these is because they typically pay large up front commssions in the 8 to 10% range of the initial investment.
With this article, you will receive a bonus education regarding investments on my Do Not Buy List. Two of the investments on my Do Not Buy List, both Promissory Notes and Private Placements are mentioned in the article. See this link for the sad story:
http://www.fa-mag.com/fa-news/5116-securities-america-charged-with-misleading-investors.html
Once again, I have been proven correct that these so called "investments" belong squarely on my Do Not Buy List. By the way, do not buy means do not buy ever!
One of these days, people may actually save themselves the misery and listen to what I have to say.
With this article, you will receive a bonus education regarding investments on my Do Not Buy List. Two of the investments on my Do Not Buy List, both Promissory Notes and Private Placements are mentioned in the article. See this link for the sad story:
http://www.fa-mag.com/fa-news/5116-securities-america-charged-with-misleading-investors.html
Once again, I have been proven correct that these so called "investments" belong squarely on my Do Not Buy List. By the way, do not buy means do not buy ever!
One of these days, people may actually save themselves the misery and listen to what I have to say.
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!
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!
Monday, July 13, 2009
A Blast From the Past
About 4 and 1/2 years ago, the Securities and Exchange Commission put out a request for comments on whether to allow broker/dealers an exemption from being registered as a registered investment adviser. Back then, the SEC ruled that broker/dealers were exempt. This has obviously turned out to be a huge mistake as the events of the last year will attest. I thought it would be interesting for my readers to go back and see my position as I wrote it. Seems like I knew what was in store for the future. My response from February 3, 2005 is in blue type. I will add some final comments at the end of this blog article.
Subject: File No. S7-25-99
From: Richard A Johnson, CFP, CMFC, RFC
Affiliation: Rick Johnson Family Office, LLC
February 3, 2005
Although there are many issues to discuss with this proposed rule, I shall limit my comments to a few key points.
1 The use of titles by broker/dealer registered representatives: Financial Advisor, Financial Consultant, Investment Consultant and other similar terms are a major source of confusion for investors. I believe that any individual holding themselves out as a financial planner, financial consultant, financial advisor, investment consultant or other similar term should have to register under the Advisors Act of 1940. This is regardless of whether or not they have discretion over an account or not.
Further, registered representatives of broker/dealers should only be able to use terms that include the word representative in its description. For example, financial representative, or investment representative. In addition, senior broker/dealer representatives could have a title similar to these senior financial representative, senior investment representative, or financial representative II. The point is that registered representatives should have at least the word representative on their business card, if they want to rely on the exemption for registration under the Advisors Act. Those who desire to put financial planner, financial advisor, financial consultant or similar term should have to register under the Advisors Act.
2 The commission is mistaken if it believes that fee based investment advice is one of the best ways of delivering value to an investor. I see a scenario where broker/dealers will be given a green light to put every client that they can into a fee based brokerage account. This truly benefits the broker/dealer in stabilizing their revenue stream. But what about the client? Is the Commission naive enough to believe that broker/dealer clients who were neglected in the past because they had already been sold B shares, CDSC annuities and the like will suddenly be taken better care of by being in a fee based account? Specifically, I am referring to a clients second and third year of being in a fee based account. If a client has given the broker/dealer all their money, then how much attention do you truly believe they will be getting in years two, three and beyond? If history lends us a clue, we only have to look at how these same clients were treated when they had already been sold every possible commissionable investment. They were put aside for new clients of the firm. The same thing will happen if you allow a green light to the broker/dealers to sell fee based accounts without being registered as investment advisors.
Financial Planners/Registered Investment Advisors have a fiduciary responsibility to not only give the initial advice, but also to continuously give advice. Broker/Dealer representatives would not have the same standard.
3 Further, what value does the client receive from a broker/dealer sold fee based account when the client is not trading very often. Wouldn't they be better off in a commission account over the longer term? However, again I believe the Commission would be naive to believe that broker/dealers are not going to pressure their sales force to constantly add fee paying clients to its roster. It is the firms interest which will override the clients interest.
As a former branch manager of a major broker/dealer, I can tell you that I had significant pressure to put clients into fee based accounts. Sadly, with my knowledge as a CFP, I knew full well that clients were not going to be taken care of properly over the long haul in these accounts, because the broker/dealer was not interested in taking care of clients. They were interested in taking care of their own revenue.
You tell me if this is a conflict of interest or not. As a branch manager, I had a 67,000,000 target in my last quarter, yes that's right, I said quarter. If I brought in a million dollar account, then I was credited with 1,000,000 to my asset target of 67,000,000. However, if I took that same 1,000,000 account and put them in a fee based account, then I was credited with an additional 1,250,000 in asset credit towards my target. Now where do you think my focus was as a manager? To make sure clients were getting great financial advice, or to make sure that I reached my asset target? I was crazy not to take advantage of putting everyone that I could into fee based accounts, when I received 225 percent towards my asset target. Wouldn't you agree? Again, where is the client in all this? Neglected that is where.
Broker/Dealers should register under the Advisors Act to insure that clients receive not only initial advice, but ongoing advice held to a fiduciary standard.
Thank you.
Proof once again that I know my stuff. It sure is telling now that there is a call for a fiduciary standard for broker/dealers and their registered representatives.
The broker/dealers won their lobbying efforts back then, and I fully expect them to win their lobbying efforts again. In other words, the fiduciary standard will have loopholes in favor of the broker/dealers that they will be able to drive their Mack Trucks through. They have all the political clout in Washington D.C. Clients unfortunately do not stand a chance. Wait and see.
Thanks.
Monday, June 22, 2009
Regulatory Regime?
SEC Chairman Mary Shapiro continues to work the media in regard to the harmonization of "regulatory regimes." I do not know about you, but when I hear the word regime I think of places like North Korea, Iran, Venezuela, Cuba and the Taliban. I am not sure if we need a regulatory regime.
She keeps referring to brokers and investment advisers as being "virtually identical." I believe this is the end game. The powers to be want to meld the broker dealer world with the investment adviser world into a unified regulatory structure.
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090619/REG/906199968/1094/INDaily01
It is funny when regulators fail in their duty to protect investors they suddenly become the mouthpiece for what is wrong with the regulations. Their patented answer is always "we were under staffed and under funded." If only they had more employees and more money, then that certainly would have solved everything. I beg to differ.
I think the problem lies in training. A trained eye would have been able to look at the account statements produced by Bernard Madoff Investment Securities LLC (FINRA regulated for 28 years) and determine within a few minutes that they were fraudulent. It was obvious to me that a template method was used to produce those statements. A template is a blank statement where the template is put into the printer while someone prints bogus information from a spreadsheet to perfectly fit the columns in the template statement.
Last summer, I met a couple whose broker had done something similar. This broker cut and pasted financial firm logos in an unusual manner in letters and emails. This broker sent out numerous communications from a financial firm that he was not even affiliated with to these clients. All you have to do is go to FINRA broker check and see that this broker was not registered with the company that he was purporting to be a broker with. I was able to spot it in about two minutes. I worked with a federal regulatory person to help put this broker out of business. Luckily, we caught him after he had duped only three investors and I believe a lot of the damage was reversed. Oh by the way, this unscrupulous broker was a FINRA registered representative. Imagine that! That came as no surprise to me, of course.
Make no mistake. I am not here to beat up on the SEC Chairman or the regulators in general. They have a tough job and it is not getting any easier for them. My take on it is that better training (forensics) should be the focus.
Further, if the regulators focus on those brokers or advisers who sell exotic products, then they are likely to find most of their criminals in these areas. For example, highly exaggerated performance claims, 12% promissory notes, 12% CD's, Private Equity, Illiquid Real Estate Limited Partnerships, Structured Products and various Alternative Investments. Most of the problems involving criminals revolve around appealing to greed by promising high returns. Registered investment advisers out there charging a percent of assets under management for investing in widely held, exchange listed investments are not near the problem that those advisers selling exotic investments are to the regulators.
The SEC commissioner has said that fully one third of the regulatory actions taken this year have been against registered investment advisers. At first glance, that may sound bad. However, this means that fully TWO THIRDS of the regulatory actions taken were against FINRA brokers! Now you tell me, where is the bigger regulatory headache?
That's what I thought!
She keeps referring to brokers and investment advisers as being "virtually identical." I believe this is the end game. The powers to be want to meld the broker dealer world with the investment adviser world into a unified regulatory structure.
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090619/REG/906199968/1094/INDaily01
It is funny when regulators fail in their duty to protect investors they suddenly become the mouthpiece for what is wrong with the regulations. Their patented answer is always "we were under staffed and under funded." If only they had more employees and more money, then that certainly would have solved everything. I beg to differ.
I think the problem lies in training. A trained eye would have been able to look at the account statements produced by Bernard Madoff Investment Securities LLC (FINRA regulated for 28 years) and determine within a few minutes that they were fraudulent. It was obvious to me that a template method was used to produce those statements. A template is a blank statement where the template is put into the printer while someone prints bogus information from a spreadsheet to perfectly fit the columns in the template statement.
Last summer, I met a couple whose broker had done something similar. This broker cut and pasted financial firm logos in an unusual manner in letters and emails. This broker sent out numerous communications from a financial firm that he was not even affiliated with to these clients. All you have to do is go to FINRA broker check and see that this broker was not registered with the company that he was purporting to be a broker with. I was able to spot it in about two minutes. I worked with a federal regulatory person to help put this broker out of business. Luckily, we caught him after he had duped only three investors and I believe a lot of the damage was reversed. Oh by the way, this unscrupulous broker was a FINRA registered representative. Imagine that! That came as no surprise to me, of course.
Make no mistake. I am not here to beat up on the SEC Chairman or the regulators in general. They have a tough job and it is not getting any easier for them. My take on it is that better training (forensics) should be the focus.
Further, if the regulators focus on those brokers or advisers who sell exotic products, then they are likely to find most of their criminals in these areas. For example, highly exaggerated performance claims, 12% promissory notes, 12% CD's, Private Equity, Illiquid Real Estate Limited Partnerships, Structured Products and various Alternative Investments. Most of the problems involving criminals revolve around appealing to greed by promising high returns. Registered investment advisers out there charging a percent of assets under management for investing in widely held, exchange listed investments are not near the problem that those advisers selling exotic investments are to the regulators.
Another idea may be to allow any financial institution accounts opened by a financial adviser to be run through filters at the SEC. These filters would be looking for large personal deposits that are outside the normal deposits of that particular adviser. It seems to me that this could be done similar to the way anti-money laundering is managed. If a highly unusual deposit into a personal or business account is discovered, then the SEC could immediately begin an inquiry. Honest investment advisers would not mind the scrutiny. I know that I would not mind such scrutiny.
The SEC commissioner has said that fully one third of the regulatory actions taken this year have been against registered investment advisers. At first glance, that may sound bad. However, this means that fully TWO THIRDS of the regulatory actions taken were against FINRA brokers! Now you tell me, where is the bigger regulatory headache?
That's what I thought!
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