There have been several articles of late that have grabbed our attention or garnered significant national press that we thought we would take the time to share this week. Please see a brief intro to each and a link to access below . . .
Why I am Leaving Goldman Sachs
Now former Goldman Sachs employee Greg Smith wrote an op-ed piece for the New York Times last week on how watching clients' interests being routinely and systematically ignored for the betterment of the firm led to him feeling like the only ethical option was to resign. The piece has been much publicized as an indictment against Goldman and the entire wirehouse business model in general.
Really Big Claims Based on Too Little Data
TAAG Blog favorite Carl Richards posted this New York Times Bucks blog recently. Carl takes on the dangers of looking at data over the short term and building conclusions based upon not enough information. He also does an excellent job of explaining why, ultimately, the data supports a low cost, globally diverse portfolio over finding the best fund manager du jour every time.
The Real Cost of Paper Savings Bonds
This was a post from a guest blogger to the FPA All Things Financial Planning Blog that Chip contirbutes to monthly on the potential risks of hanging onto physical, paper savings bonds and the electronic deposit program the Treasury has established to make tracking and redeeming your bonds safe and simple.
Have a great week!
The Asset Advisory Group
Website / E-mail
Showing posts with label fiduciary duty. Show all posts
Showing posts with label fiduciary duty. Show all posts
Tuesday, March 20, 2012
Monday, October 11, 2010
Peeking Behind the Curtain
Peggy Noonan wrote an excellent article in the Wall Street Journal recently framing the coming November elections as a battle between, as she puts it, the enraged and the exhausted.
Part of her argument is that much of the growing distaste for our elected officials on both sides of the aisle stems from the almost constant access to information about the goings on in the government. As Tennessee congresswoman Marsha Blackburn is quoted, “The more they (the public) know, the less they like Washington.”
I won’t begin to suggest that I can sort out our government’s issues, but the availability of information about the recent turmoil in the markets and economy have shed the same light on Wall Street. Investors are learning more and more about how the Wall Street game has been played, and it has not been pretty.
Salespeople posing as advisors pushing products of ever-expanding sophistication that make fantastic promises, but rarely benefit anyone but those very salespeople and the firms they represent. The allure of can’t miss products without an increase in risk has been a powerful tools for these “financial wizards” for decades. But, be it uncovering Madoff-like scams, watching supposedly safe bond funds plummet in value, or finding out that structured products aren’t structured quite as advertised, these too good to be true miracle cures have proven to be just that.
Peeking behind the curtain in Washington and on Wall Street has allowed us to see holes and problems that we may have never seen in the past. It’s always admitting the problem that’s the first step in any recovery. It’s a painful process. These problems have no easy answers and will take tough choices and sacrifice to resolve.
When it comes to Wall Street, we must be more vigilant in seeking out those advisors that truly have our best interests at heart. Who they serve, how they’re compensated and what drives the investment decisions they make should be as transparent to the average investor as possible. The curtain should not just be pulled back, it should be removed altogether.
In seeking the right tools to put a plan in place for our financial future, we must understand that there are no magic answers. The wizard behind the curtain isn’t interested in anything other than counting their own money. Controlling that which we can and adhering strictly to a disciplined plan may not be as exciting as what the wizard is selling, but it won’t leave you exhausted and enraged, either.
Have a great week!
Chip Workman, CFP®
cworkman@taaginc.com
www.taaginc.com
Part of her argument is that much of the growing distaste for our elected officials on both sides of the aisle stems from the almost constant access to information about the goings on in the government. As Tennessee congresswoman Marsha Blackburn is quoted, “The more they (the public) know, the less they like Washington.”
I won’t begin to suggest that I can sort out our government’s issues, but the availability of information about the recent turmoil in the markets and economy have shed the same light on Wall Street. Investors are learning more and more about how the Wall Street game has been played, and it has not been pretty.
Salespeople posing as advisors pushing products of ever-expanding sophistication that make fantastic promises, but rarely benefit anyone but those very salespeople and the firms they represent. The allure of can’t miss products without an increase in risk has been a powerful tools for these “financial wizards” for decades. But, be it uncovering Madoff-like scams, watching supposedly safe bond funds plummet in value, or finding out that structured products aren’t structured quite as advertised, these too good to be true miracle cures have proven to be just that.
Peeking behind the curtain in Washington and on Wall Street has allowed us to see holes and problems that we may have never seen in the past. It’s always admitting the problem that’s the first step in any recovery. It’s a painful process. These problems have no easy answers and will take tough choices and sacrifice to resolve.
When it comes to Wall Street, we must be more vigilant in seeking out those advisors that truly have our best interests at heart. Who they serve, how they’re compensated and what drives the investment decisions they make should be as transparent to the average investor as possible. The curtain should not just be pulled back, it should be removed altogether.
In seeking the right tools to put a plan in place for our financial future, we must understand that there are no magic answers. The wizard behind the curtain isn’t interested in anything other than counting their own money. Controlling that which we can and adhering strictly to a disciplined plan may not be as exciting as what the wizard is selling, but it won’t leave you exhausted and enraged, either.
Have a great week!
Chip Workman, CFP®
cworkman@taaginc.com
www.taaginc.com
Monday, July 5, 2010
Investor Protection Gets Knocked Out of the Financial Reform Law
(from Jane Bryant Quinn's website, janebryantquinn.com, 6/25/2010 - read the article directly here)
Senator Tim Johnson socked investors with what might be a knockout punch, during negotiations on the financial reform bill. Investor protection is down for the count. The new law, when passed, is going to leave you out.
Johnson, a South Dakota Democrat, laughs at the concept of “fiduciary duty”—the idea that people who advise you on investments should to put your financial interests ahead of their own.
At present, registered Investment advisers have a fiduciary duty toward you and your money. But there’s an exception for stockbrokers and insurance agents. They can—and do—advise you to buy financial products that benefit themselves more than they benefit you.
For example, it’s okay for them to offer you high-cost mutual funds when low-cost funds are available that invest the same way. It’s okay for them to sell you a high-cost, out-of-state 529 college savings plan when your own state’s plan costs less and gives you a tax deduction, too.
The version of financial reform passed by the House of Representatives would have stopped all that. The House brought brokers and insurance agents under the fiduciary rules when they offer personal financial advice.
The bill passed by the Senate punted, by telling the Securities and Exchange Commission to study the issue. The House and Senate are now negotiating their differences.
Suddenly, out of the blue, Johnson swept in—not with a compromise, but with an even broader anti-investor proposal. When the SEC eventually does the study, limits will be put on its findings. It won’t be allowed to decide that brokers should be subject to the fiduciary rules unless there is virtually no other way of protecting investors from unscrupulous advice.
Barbara Roper, director of investor protection for the Consumer Federation of America, calls the provision a “poison pill.” It ensures that brokers can continue to violate your trust. The Senate negotiators passed Johnson’s proposal on a voice vote, without revealing the names of the Senators who supported it.
Johnson, known as the “senator from Citibank,” habitually sides with the financial industry and against consumers. He’s the only Democrat who opposed last year’s legislation to curb credit card abuses.
Next year, he’s in line to become the chair of the Senate Banking Committee. If that happens, you can kiss any further reforms good-bye. You can also expect his committee to be sympathetic to bills that roll current protections back.
At this writing, nothing is final. But the House will probably accept the Senate’s punt. Johnson’s aggressive language might be watered down, but brokers and insurance agents won’t have to change their ways anytime soon. Remember this, when they give you advice. You can’t trust them. They put their own interests first.
Senator Tim Johnson socked investors with what might be a knockout punch, during negotiations on the financial reform bill. Investor protection is down for the count. The new law, when passed, is going to leave you out.
Johnson, a South Dakota Democrat, laughs at the concept of “fiduciary duty”—the idea that people who advise you on investments should to put your financial interests ahead of their own.
At present, registered Investment advisers have a fiduciary duty toward you and your money. But there’s an exception for stockbrokers and insurance agents. They can—and do—advise you to buy financial products that benefit themselves more than they benefit you.
For example, it’s okay for them to offer you high-cost mutual funds when low-cost funds are available that invest the same way. It’s okay for them to sell you a high-cost, out-of-state 529 college savings plan when your own state’s plan costs less and gives you a tax deduction, too.
The version of financial reform passed by the House of Representatives would have stopped all that. The House brought brokers and insurance agents under the fiduciary rules when they offer personal financial advice.
The bill passed by the Senate punted, by telling the Securities and Exchange Commission to study the issue. The House and Senate are now negotiating their differences.
Suddenly, out of the blue, Johnson swept in—not with a compromise, but with an even broader anti-investor proposal. When the SEC eventually does the study, limits will be put on its findings. It won’t be allowed to decide that brokers should be subject to the fiduciary rules unless there is virtually no other way of protecting investors from unscrupulous advice.
Barbara Roper, director of investor protection for the Consumer Federation of America, calls the provision a “poison pill.” It ensures that brokers can continue to violate your trust. The Senate negotiators passed Johnson’s proposal on a voice vote, without revealing the names of the Senators who supported it.
Johnson, known as the “senator from Citibank,” habitually sides with the financial industry and against consumers. He’s the only Democrat who opposed last year’s legislation to curb credit card abuses.
Next year, he’s in line to become the chair of the Senate Banking Committee. If that happens, you can kiss any further reforms good-bye. You can also expect his committee to be sympathetic to bills that roll current protections back.
At this writing, nothing is final. But the House will probably accept the Senate’s punt. Johnson’s aggressive language might be watered down, but brokers and insurance agents won’t have to change their ways anytime soon. Remember this, when they give you advice. You can’t trust them. They put their own interests first.
Monday, June 29, 2009
The F-Word
One of the least discussed but most important factors to consider when hiring a financial advisor is whether or not they are a fiduciary. This means the advisor has a legal obligation to put their clients’ interests ahead of their own. Most consumers assume that their advisor is acting in this capacity, when many times he is not.The law regards the job of advisor as a position of trust and requires those with a fiduciary obligation to disclose any conflicts of interest and to act with a heightened sense of duty toward clients. Registered Investment Advisors with the Securities and Exchange Commission are held to this standard. As of July 1, 2008, Certified Financial Planners had the ethical standards by which they are held revised, making it explicit they too must put clients’ interests first, act as fiduciary and disclose the scope of their engagement and their compensation when engaging in planning activities.
Because a broker’s job is considered to be transactional as they are often placing trades on a client’s behalf, they are held to a different regulatory standard. Their duty is to make a recommendation that is “suitable” to their client’s circumstances. If a brokerage house manages a large cap growth mutual fund that has an internal expense ratio of 1.50% and an additional 12b-1 marketing fee of 1% that is paid to the broker, this would be considered suitable instead of recommending another large cap growth fund with much lower internal costs.
In the financial services industry, there has been a lot of talk about how consumers are confused about the difference between brokers who call themselves "financial advisors" or "investment advisors" and Registered Investment Advisors who are held to a fiduciary standard. In the past each were paid very differently – advisors charged management fees and brokers received commissions. Over the past several years many brokers have begun charging fees, giving consumers the impression that they are acting as fiduciaries.
The recently proposed financial regulatory reform legislation gives members of Congress the opportunity to improve the world of consumer finance. Fortunately Mary Shapiro, head of the Securities and Exchange Commission, has stated that the SEC might recommend creating a single standard that applies to advisors and brokers – a fiduciary standard.
In the interim, make sure you question your financial advisor as to which standard they are held.
By Chris Carleton, CFP®
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