Category Archives: Wall Street Business Practices

Wall Street Needs Mandatory Disclosure; Not More Hypocrisy

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Wall Street Needs Mandatory Disclosure; Not More HypocrisyAs long as there is no mandatory disclosure for financial advisors, Wall Street is free to determine what is communicated to you and how it is communicated (verbal versus documented). And, it would be naïve on your part to assume Wall Street will volunteer any information that damages its revenue and profitability.

A great New Year’s resolution for Wall Street would be to come clean with you and the millions of other investors who depend on its competence and ethics. For the first time, financial advisors and their firms would voluntarily provide the facts you need to make informed decisions. But, don’t hold you breath. Wall Street, like the tobacco and pharmaceutical industries, cannot afford to adopt business practices that include full disclosure. Continue reading →

Wall Street Fights Higher Ethics Standards for Stockbrokers

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Wall Street Fights Higher Ethics Standards for StockbrokersPrior to 1975 stockbrokers were called Customers’ Men. Their role was to help clients achieve their financial goals. They did this by performing duties that in modern times are provided by money managers. For example, they helped clients develop strategies and build portfolios. They recommended investments based on company research. And, they bought and sold securities for their clients.

This hundred year-old relationship changed when trading commissions were deregulated. The new regulation created discount brokers and severe price competition between established firms. Stockbrokers could no longer make the money they were used to so they had to change their role. They became salesmen whose primary role was to sell investment and insurance products (mutual funds, annuities) to their clients. They were and still are compensated with commissions that are based on the amount of products they sell. Continue reading →

Wall Street’s 5 Most Deceptive Sales Practices

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Wall Street’s 5 Most Deceptive Sales PracticesYou have seen the headlines. Wall Street firms have paid billions of dollars of fines for cheating or defrauding investors. You may have disregarded the headlines because they did not impact you. But, the headlines are not the only risks that are created by Wall Street. There are other risks and there is a 75% probability one of them is impacting you.

These risks are created by deceptive sales practices that lower quality advisors use to sell investment and insurance products. Continue reading →

Wall Street Executives Belong in Watchdog’s Ethics Doghouse

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Morgan Stanley CEO James Gorman had the partial fortitude to admit his firm belongs in the doghouse. Unfortunately, he also used two forms of standard Wall Street spin to dilute the impact of his comment when Bloomberg News quoted him saying, “Wall Street’s reputation will remain “in the doghouse” as long as trading scandals continue to plague the industry.” He went on to blame UBS for the latest scandal when he said, “The good works of the industry are ignored when some trader does some stupid thing like this guy at UBS did and goes to jail”.

Gorman is right about the doghouse. According to a Gallup poll last Summer, Americans’ confidence in U.S. banks fell to a record low of 21 percent; about half of what it was in 2007 before the Wall Street initiated crash in 2008. This was supported by Edelman Public Relations survey in January of this year that showed Financial Services & Banking were the least-trusted industries in America. Continue reading →

Three Reasons Why Wall Street Loves Retirement Assets

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From Wall Street’s point of view, the ideal assets are the ones it can retain the longest and the ones that produce the largest amounts of new fees and commissions.

Investors may spend 30 years accumulating assets for their retirement years. Then they may spend 30 years in retirement. If a Wall Street advisor created a relationship with this type of investor on day one he could generate fees and commissions for the next 60 years.

In year one, the investor opens an account with an initial contribution of money – let’s say $5,000. And, the investor contributes that amount for the next 30 years. Simple math, with no compounding, says the investor will have $150,000 at the end of the 30-year period. Continue reading →

What’s the Value of Conflict Free Advice?

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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 →

Looking for Help on How to Trade? Make Sure the Advisor Puts Your Interests First!

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Looking for Help on How to Trade? Make Sure the Advisor Puts Your Interests First!In the good old days, there was a straightforward relationship between investors and stockbrokers who were paid commissions to help investors trade their portfolios. They recommended stocks for purchase and sale based on input from analysts that worked for their firms.

That whole model fell apart in 1975 when brokerage commissions were deregulated. This change spawned a new type of firm that was loosely described as a discount broker. Then, when you needed help on how to trade, you had a choice: the traditional full service brokerage firm or the new upstart discount broker. Continue reading →

Your Pension Assets Have a Competitor! It’s Wall Street!

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Your Pension Assets Have a Competitor! It’s Wall Street!I often wonder why millions of boomers have not figured this out. They spend 30 or 40 years saving trillions of dollars of pension assets in their retirement accounts. Then they turn the assets over to Wall Street professionals who are supposed to increase their pension amounts with sage advice and sophisticated investment services.

The role of pension assets is to produce income during retirements that may last 30 or more years. That’s right, a lot of boomers will spend as many years in retirement as they did working. That’s the good news. The bad news is rising longevity means investors will have to generate higher investment performance to offset the erosive impact of expenses and inflation for a lot longer than they may have thought. Or, they may face their biggest nightmare, inadequate assets late in life when they need it the most.   Continue reading →

Wall Street is a Marketing Machine With no Real Boundaries

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You have seen the TV advertisements. Wall Street markets competence, trust, and services that help you achieve your financial goals. You have also seen the headlines documenting Wall Street abuses that have cost investors hundreds of billions of dollars. Which one do you believe, the ads or the headlines?

Wall Street is trustworthy or its not. I believe the headlines because regulatory agencies (SEC, FINRA, states) have documented one Wall Street abuse after another. When the most prestigious firms on Wall Street (Goldman Sachs, Citigroup) are ripping off investors you know the industry is not the trustworthy source of advice and information that its advertisements say it is.  Continue reading →