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Notes From the Fieldby Martin Weil

Posts Tagged ‘Fiduciary’

March 19, 2012

“How much money did we make off the client?”

That, according to exiting Goldman Sachs Managing Director Greg Smith, is the most common question asked by analysts at this once-venerable and above-reproach investment bank. Smith’s public exit letter from Goldman puts a giant exclamation point on just how toxic (for clients) the culture at major brokerages has become.

According to Smith, there are the ways to get ahead at Goldman today:

a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman… c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

While there is nothing new in these practices, it is a sad day for the investment business when the formerly reputable Goldman is exposed to be as antagonistic to their clients’ best interests as a lowly “bucket shop,” as the Smith piece contends.

January 23, 2012

Suze Orman, what’s going on?

Contrary to many of my colleagues, I have been a fan of Orman for her mass popularization of the basic concepts of financial planning. I took her to be an honest and consumer-centric, if somewhat self-aggrandizing, purveyor of honest financial truths.

But than along came her association and peddling of a cash-back card that received less than stellar reviews from the consumer folks.

And now this, her association, and again peddling, of a seemingly dubious investment newsletter.

Orman is of course free to do as she pleases. But promoting businesses in which she has a personal financial interest violates the basic standards of ethical behavior that I believe every consumer deserves. And it stands in contrast to the ethical, clean-as-a-whistle, image she has worked so hard to create.

“Cashing-in” is not one of the ways an ethical provider serves consumers Suze.

June 17, 2011

Does Your Investment Professional Adhere to a Fiduciary Standard?

We do and you should care.  Morningstar explains:

The Fiduciary Standard is the highest standard of care that is required by investment professionals, but it currently only applies to registered investment advisors. … Under the Investment Advisors Act of 1940, only registered investment advisors are held to the highest standard of care, called the Fiduciary Standard. This requires advisors to put their clients’ interests before their own and to eliminate any conflicts of interest that they can or to disclose the conflicts that cannot be eliminated.

Broker-dealers, however, generally do not have to meet the Fiduciary Standard. While broker-dealers must ensure that an investment is suitable for clients, they are not required to put their clients’ interests ahead of their own and are not required to disclose any conflicts of interest. This opens the door for questionable investment recommendations that, while perhaps passing the test of suitability, provide the broker with large commissions at the expense of the investor.

The lack of Fiduciary Standard for broker-dealers should worry investors, as broker-dealers have increasingly become larger players in the investment advice industry. It has become a hot topic for financial regulators…

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