The Bad Actors

I saw three reports of financial abuse in the last week. One of the stories occurred at Wells Fargo, which keeps coming up with new ways of ripping off its customers.

There is no way that Wells found the 14,000 least ethical financial advisors in the industry. What they found is the simple fact that humans respond to incentives. Bethany McLean and Ethan Wolff-Mann at Yahoo! Finance write:

  • This could put advisors in tough situations, the advisor recalled, when they would be faced with the dilemma of putting a client in an investment that may not have been the best choice for them or risk their bonus.
  • Another advisor discussing the irrevocable trust fee schedule recalled hearing a manager say, “So long as you disclose it, you can charge it!”
  • The fees for planning, according to an internal presentation called “The Wealth Planning Client Experience,” were significant: from $5,000 to $68,000 per year, depending on the client’s assets.

Tara Siegel Bernard writing for the New York Times highlighted abuse occurring at J.P. Morgan (emphasis mine).

  • After about six months, she learned that the account, worth roughly $1.3 million at the start of 2017, had been charged $128,000 in commissions that year — nearly 10 percent of its value, and about 10 times what many financial planners would charge to manage accounts that size.
  • In August 2017 alone, Mr. Rahn had sold two-thirds of the portfolio, or about $822,000, and then reinvested most of the proceeds, yielding about $47,600 in commissions

It has been nearly twenty years since Jordan Belfort plead guilty to securities fraud. So it’s amazing that there are companies with names like Power Traders Press that are still pumping and dumping stocks like Grilled Cheese Truck Inc. Newsday reported

  • Two Suffolk men who are among more than a dozen people accused of operating a $147 million pump-and-dump stock scheme out of so-called boiler rooms on Long Island pleaded guilty Wednesday in federal court to conspiracy to commit securities fraud and other crimes.
  • More than 100 investors nationwide, many elderly, lost money in the scheme, according to federal prosecutors.

There are thousands of financial advisors doing the right thing by their clients, but it’s the bad actors that make the headlines. Unfortunately, fraud, theft, and greed make for great stories while compassion, integrity, and ethics do not.


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