What’s the Value of Conflict Free Advice?

Posted on November 1, 2012 by Frank Armstrong

Whenever conflicts of interest exist you can be sure that some people will take advantage of them. The pension consulting business has a laundry list of possible conflicts: Pay to play, proprietary products, revenue sharing, and commissions to name just a few. Disclosure is almost nonexistent, and fiduciaries are generally inept. In theory, pensions are subject to extensive oversight, but legislation and regulatory enforcement badly lag the situation on the ground. With both regulators and plan sponsors asleep at the switch, it is hard to imagine a more target rich environment for a sales organization.

For plan sponsors, the Gordian knot is a simple exercise in comparison to untangling the conflicts embedded in a bundled product pension solution. Half of pension consultants receive compensation from the managers that they recommend. So, it shouldn’t be a big surprise that those conflicts impact both price and performance in a meaningful way. Continue reading →

Does the Conflict-Free Financial Adviser Really Exist?

Posted on July 19, 2012 by Jack Waymire

I read a great article this weekend that appeared in the Your Money section of The New York Times. The article was titled “The Perils of Finding a Conflict-Free Financial Adviser” and was written by Tara Siegel Bernard. It is pretty obvious, by the content of the article, that Bernard knows advisers and the tricks of the trade.

Her article starts by describing how difficult it is to identify advisers who are required to put investor interests ahead of their own. They are out there, but they are hard to find. These advisers are registered as Investment Advisor Representatives (IARs), which make them financial fiduciaries who are held to the highest ethical standards in the financial service industry. Perhaps one out of five advisers are IARs. Continue reading →

How Does Advisor Compensation Impact Fiduciary Status?

Posted on April 13, 2012 by Jack Waymire

Advisors who are financial fiduciaries are allowed to provide financial advice for fees.

Non-fiduciary advisors are limited to selling investment products for commissions. They are not allowed to charge fees for their services.

Do you really want a sales rep who is paid commissions investing your assets? Of course not and Wall Street knows it. Its solution is to blur distinctions between the two types of advisors and hope you won’t take the time to learn the differences.

If you want a fiduciary advisor select one whose only method of compensation is fees.

Financial Fiduciaries are Lower Risk

Posted on January 25, 2012 by Jack Waymire

Financial planners, financial advisors, investment advisors, and money managers are financial fiduciaries. That’s because they are Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs) who work for RIAs. What does this mean to you, the investor?

Fiduciaries are held to the highest ethical standards in the financial services industry. They are required to put their clients’ financial interests ahead of their own. In other words, your financial interests come first.

Non-fiduciaries are held to a lower ethical standard called suitability. In a nutshell, a suitable investment means that an investment is appropriate for an investor’s willingness and ability to take on some level of risk. Here’s a good article that explains suitability in more detail.

If you’re looking for a new financial advisor or your first financial advisor, make sure you select an RIA or IAR and require them to acknowledge their fiduciary responsibilities in writing. Remember: it’s your money so the financial professional you hire should have the highest level of accountability back to you, the client!

Wall Street Firms Lose Market Share

Posted on November 28, 2011 by Jack Waymire

It is about time! A Forbes article recently reported the market share of major Wall Street firms for retail (individual investors) assets under management has fallen from 49.7% to 42.8%.

It appears investors are finally waking up to the fact that Wall Street firms put their needs for profits, rising share prices, and executive bonuses way ahead of investor needs to accumulate assets for retirement.

Since 2000 Wall Street firms have paid billions of dollars of fines for cheating investors. Based on their “unique” relationship (payola) with politicians they did not have to admit guilt when they paid the fines.
Consequently, no Wall Street executives went to jail. They are still running these firms and dreaming up their next financial bubble or scam.

Investors have moved their assets to smaller, more independent firms that do not have the massive conflicts of interest of the Wall Street firms.

Well done investors!

Rules Don’t Apply to Washington Aristocrats

Posted on November 16, 2011 by Jack Waymire

Laws did not apply to medieval aristocrats (royalty) and apparently they don’t apply to the aristocrats (politicians) who rule the United States of America.

Last Sunday 60 Minutes documented the laws that govern insider trading and the distribution of IPO stocks do not apply to our senators and congressmen. In fact, politicians sit in closed door committee meetings and make decisions that impact public companies. Then they buy and sell the stocks of the companies before their decisions are made public. This is a criminal act unless you happen to be a politician.

These politicians make rules that govern Wall Street and then exclude themselves from the rules.

How do you clean-up the corruption on Wall Street when the people responsible for the clean-up are even more corrupt?

America is in serious trouble.

If this doesn’t bother you nothing will.

Wall Street’s Good Old Boy Network

Posted on October 27, 2011 by Jack Waymire

In a recent New York Times article, Peter Lattman reported Rajat Gupta, a former director of Goldman Sachs, is accused of leaking bank secrets to his friend Raj Rajaratnam. Rajaratnam, head of the Galleon Group Hedge Fund has already been sentenced to 11 years in prison for masterminding a huge insider trading conspiracy.

Why are we shocked that this former director may have broken the law? Wall Street executives have a long history of breaking laws to maximize profits in ways that benefit them and their friends.

In this most recent example of Wall Street ethics, or lack of ethics, you are seeing the tip of a huge iceberg. Wall Street is built around a good old boy network that is based on social relationships, shared research, country clubs, and joint investment opportunities. There is no way the SEC can exert any meaningful control over this network. Why? The executives are smarter than the regulators, they are protected by favorable laws, and all of the executives’ communications are verbal and behind closed doors. The only smoking gun is their trading patterns which are difficult to detect.

Do you really believe Goldman Sachs earns billions of dollars a year doing what is best for investors? If you answered yes, I own a bridge that you may want to buy.

Investors Have Short-Term Memories

Posted on February 9, 2010 by Jack Waymire

Wall Street is counting on the short-term memories of millions of investors who need their services so it can return to business as usual.

Two times in the past decade Wall Street greed and incompetence created trillions of dollars of losses for investors. You might think investors would be fed up and pull their assets from these institutions. There are three reasons why millions of investors stay with Wall Street firms.

First, they still need Wall Street’s types of services. And, unfortunately, investors don’t know where else to go to get the planning and investment services they need.

Second, Wall Street uses advertising and other marketing tactics to tell investors what they want to hear – we are competent and trustworthy. Unfortunately, people believe these marketing messages and forget the billions of dollars of fines that Wall Street companies paid for cheating investors.

Third, Wall Street employs or licenses hundreds of thousands of personable financial advisors who commiserate with investors then sell them Wall Street’s latest products.

There is a solution. Hire an independent Registered Investment Advisor who is paid fees to help you achieve your financial goals. They do not have the conflicts of interest that afflict Wall Street companies. For example, they don’t have shareholders, Boards of Directors, and senior executives seeking $50 million bonuses. Independent professionals can focus on helping you achieve your financial goals.

401K Participants Beware

Posted on November 20, 2009 by Jack Waymire

The Department of Labor recently withdrew a new rule that would have allowed financial advisors, who acknowledge they are fiduciaries and work for fees, to give advice to 401k participants.

As Jason Roberts, an attorney at Reish and Reicher, said, “It seems like someone in Congress gave the DOL an order to stand down.” In my opinion, Wall Street lobbyists lined the pockets of key politicians on the right committees to get the rule withdrawn. Billions of dollars of fees and commissions were at stake if Wall Street’s legions of commission sales reps did not have had access to the trillions of dollars that are owned by 401k participants.

Wall Street sales reps already have access to plan trustees who are supposed to be smarter than plan participants. But, the trustees’ lack of knowledge makes them easy targets for sales reps from broker/dealers and insurance companies. The fiduciary advisor rule created a major risk for Wall Street because the advisors would be in a position to influence the investment decisions of plan participants and critique the decisions of the trustees. Billions of dollars of fees and commissions were at stake. There is no question plan participants need help allocating assets, managing risk, selecting funds, and making strategic changes over time. They do not have the knowledge to do this work themselves. How important is this rule? It will determine the standard of living for millions of participants during retirement and their financial security late in life.

So what is the solution? Computer programs? Cookie cutter solutions based on participant ages? The solution is the fiduciary advisor who is compensated to advise participants with large and small account balances.

Warning Signs!!

Posted on September 29, 2009 by Daniel Chen

Warning Signs

Here is an issue that should raise a red flag should your financial advisor ever approach you with it. It is a fact that during very difficult and uncertain financial times, individuals are more susceptible to scams and fast money making schemes. Of course there are always a few ideas, no matter what type of times we are in, that have some credibility but never the less require extensive due diligence.
Ok, here is the latest red flag on my radar. I recently took on a new client from another advisor. Aside from the normal reasons for considering this change, the client sense of urgency increased when his previous advisor started to approach he and his wife about a "multi level" marketing business opportunity. Yes, you heard me right, the advisor presented to this client a multi level marketing campaign that promised easy and long lasting stream of revenue with minimum work on their part. I could not believe what I was hearing. I was absolutely astounded by this. What was this advisor thinking about? One would think that in these very uncertain times, when you get the opportunity to sit with your clients that you would focus on reassuring them of strategies that you have put in place for them to keep them on course for their future goals. I won’t talk about the name of this multi level campaign because it really doesn’t matter. What really matters is that this type of action on an advisors part should tell you a couple of things. One, if he is spending time on this, then what kind of time is he spending on helping his clients stay and keep on track in the new and ever changing environment that we are in? Two, if he is approaching his clients with this, is he having difficulty keeping his client base and urgently looking for another business to go into? Oh, by the way, I do not think that any compliance department in the country would allow an advisor to use his influence over his clients to engage them in another business that the advisor has an "upline" financial benefit in.

Category Archives: Conflicts of Interest