Wednesday, July 11, 2012

Big Wall Street Firms Pressure Their Salesmen to Favor House-Brands

By Paul Meyer, MA, Tim Husson, PhD, and Tim Dulaney, PhD

Financial advisors and brokers are bound by ethical guidelines to analyze and recommend investment products that are suitable and appropriate for their clients' investment objectives and tolerance for risk. In general, they are obliged to put their clients' best interests ahead of their own.

The New York Times reported Monday on the recent admission from a former JPMorgan mutual fund advisor that he sold JPMorgan funds over similar offerings from outside JPMorgan for no other reason than to attract management fees for his employer. JPMorgan is in some ways unique for selling its own funds, a practice many other banks eschew due to the clear conflicts of interest their brokers would face. From the article:
“It said financial adviser on my business card, but that’s not what JPMorgan actually let me be,” said Mathew Goldberg, a former broker who now works at the Manhattan Wealth Management Group. “I had to be a salesman even if what I was selling wasn’t that great.”
JPMorgan is also accused of lax disclosure related to the funds, including misleading marketing materials showing hypothetical, rather than realized, returns. 

At SLCG, we have seen numerous cases of firms pushing risky or underperforming investments on their clients—“recommending” (i.e., selling) proprietary products, rather than a better suited outside product. These conflicts of interest often occur with structured products, non-traded REITs, and many other high-cost, often highly complex investments. Investors should use caution when choosing investments and keep a close eye on the suggestions from their advisers. Investors should understand the sources of fees and try to minimize these fees as much as possible when meeting their investment objective.

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