By: Matthew Arndt, CFA, CPA, CFP | August 25, 2010 | Deceptive Sales Practices, Wall Street Ethics

Is your advisor unexpectedly changing his business model or practices? Do you suddenly find yourself in front of your advisor with him telling you all about the virtues of his new fee-based business? Explaining to you the merits of why his managing your portfolio for a fee is beneficial to you? Do you wonder why this is all the sudden happening right now?

The SEC is proposing a new regulatory framework that would require improved disclosure to investors. Part of the proposal includes the replacement of 12b-1 fees. You might be asking, what are 12b-1 fees? These are fees that are charged by most mutual fund companies and are paid to financial professionals. The mutual fund industry likes to call them marketing fees when really what they are is a commission paid to a financial advisor who sells a company’s mutual funds to his clients.

The SEC stated that 12b-1 fees totaled $9.5 billion in 2009 and in the words of SEC Chairman Mary L. Schapiro, “Despite paying billions of dollars, many investors do not understand what 12b-1 fees are, and it’s likely that some don’t even know that these fees are being deducted from their funds or who they are ultimately compensating. Our proposals would replace rule 12b-1 with new rules designed to enhance clarity, fairness and competition when investors buy mutual funds.”

Knowing what regulation is potentially coming to pass; many slippery types are now getting in front of this and approaching their clients explaining all the benefits of their new fee-based relationship and trying to convince their clients that the “old” way was not necessarily the wrong way but this new way is better. All you should be asking yourself is why didn’t my advisor practice this way of doing business throughout our relationship?

By: DFreecloseAuthor: DFree Name: Debbie Freeman
Email: debbie@paladinregistry.com
Site: http://www.paladinregistry.com
About: See Authors Posts (14) | August 10, 2010 | Wall Street Ethics

Wall Street is an interesting study if you think about it. On one hand, they spend millions of dollars a year in advertising, promoting their services to investors. I’ll forever remember one commercial where a couple was sitting in their living room talking about how safe they felt because they had a bull (in their living room) behind their money. Yep, that’s real comforting! The financial firm was trying to sell the concept of stability, safety, secureness, and trustworthiness.

On the other hand, Wall Street spends millions a year on lobbyists for various bills and initiatives that protect their own interests and drive through legislation that is not investor friendly.

Here’s a great article that goes more in depth into this topic. Uninformed investors don’t stand a chance against the great and almighty Wall Street marketing machine.

By: DFreecloseAuthor: DFree Name: Debbie Freeman
Email: debbie@paladinregistry.com
Site: http://www.paladinregistry.com
About: See Authors Posts (14) | July 1, 2010 | Wall Street Ethics

I guess you could consider this a positive indicator, however, it just doesn’t feel quite right. Manhattan apartment sales have reported an 80% (yes, 80%) growth rate since 2008. Much of the demand and growth can be attributed to Wall Street which has added up to 6800 jobs from February through May of this year.

The average per-square foot cost for apartments in Manhattan; a whopping $1051. This could be considered quite a deal as these prices are down 18% from 2008 rates.

Who can afford these units? A large majority of buyers are employed by Wall Street giants who have been reaping the benefits of the recent market uptick. Don’t forget that Wall Street paid a collective $20.9 billion in bonuses in 2009.

By: DFreecloseAuthor: DFree Name: Debbie Freeman
Email: debbie@paladinregistry.com
Site: http://www.paladinregistry.com
About: See Authors Posts (14) | June 28, 2010 | The Politicians, The Regulators

Before last week’s financial reform bill passed, fee-only Registered Investment Advisors (RIAs) acted as acknowledged fiduciaries. RIAs provide full disclosure to investors about how they are compensated and should have no conflicts of interest when working with investors. In other words, they look out for the investor’s needs first and foremost.

Under the new financial reform bill that was recently passed, it will now allow brokers (stock brokers, sales reps) to sell investors commission-based products as well as proprietary products while acting as a fiduciary. Wait a minute! How can brokers peddling high commission products do this with an investor’s best interests at heart? Odds are that they won’t be able to and investors will once again get the short end of the stick.

This will make the task of sorting out highly qualified and ethical advisors from those who are only looking out for their own wallets, as anyone will be able to call themselves a fiduciary. More on this topic to follow as this unfolds.

By: DFreecloseAuthor: DFree Name: Debbie Freeman
Email: debbie@paladinregistry.com
Site: http://www.paladinregistry.com
About: See Authors Posts (14) | June 25, 2010 | Ponzi Schemes

Today the SEC alleged a new Ponzi scheme. The interesting part of the story is that the alleged Ponzi operator, Kenneth Wayne McLeod, is now deceased. Hmmm, how are they going to handle this one?

The SEC has frozen the estate of Mr. McLeod, along with assets from his benefits consulting firm, Federal Employee Benefits Group, Inc as well as his Registered Investment Advisor (RIA) firm, F&S Asset Management Group, Inc.

Mr. McLeod targeted government and law enforcement employees. His tatic: “free” seminars, where he made his pitch. He was able to collect more than $34 million from victims. Similar to other Ponzi schemes, he promised high rates of return (8-13%) by investing in a “tax free bond” account, that was not real. He also told investors that their principal would be “locked up” for periods of up to eight years due to the supposedly long-term nature of the government bonds he was investing in. In addition, he also issued false statements with fake interest earnings, etc.

This is so sad and unfortunate that so many people entrusted their life savings, college funds, and inheritances to this fraudster. Always remember that there is no such thing as a “free” seminar. Know who you are hiring!

By: DFreecloseAuthor: DFree Name: Debbie Freeman
Email: debbie@paladinregistry.com
Site: http://www.paladinregistry.com
About: See Authors Posts (14) | June 21, 2010 | Financial Advisors, Financial Planners

If you’re considering hiring a financial advisor or financial planner, here are five things you should avoid during your selection process.

1. Never limit your hiring criteria solely on where the advisor is located in relation to where you live. You should always look for the most competent financial professional vs. the most convenient.

2. Don’t hire someone because they were referred to you by a friend or family member. Remember that it’s your money so you don’t know how your friend or family member determined that this professional was right for them. Conduct your own due diligence and make your own interview questions rather than counting on someone else’s hiring process. Word of mouth referrals can be very dangerous…think of Bernie Madoff’s victims.

3. Don’t limit your interview process to only one advisor. Yes, it will take some time, but remember that this is your financial future we’re talking about here. You should interview at least three financial professionals. Having a choice is very important so you can compare apples to apples. Use the same interview questions for each advisor.

4. Don’t hire an advisor solely based on his/her pitch to you. Be sure you obtain written documentation from each advisor regarding his/her backgrounds, experience, credentials, business practices, compensation, conflicts of interest, etc. Having this in writing is key. Also consider doing a background check on the person to ensure there are no hidden skeletons in the closet (prior convictions, bankruptcy, liens, compliance issues). Know who you are hiring!

5. Don’t hire a financial advisor or financial planner because they are nice and personable. There’s nothing wrong with liking your advisor, however, you should never hire just because you like them. Being nice doesn’t always equate to competence. Many highly competent financial professionals are very quantitative and detail oriented. I’d much rather have this skill set managing my financial future, personally!