The New York Times exposes JPMorgan's brokers, yet again

JP Morgan has always focussed on propietary products and any professional who goes to work there knows that.
As far as will readers make the eromeous assumption that JP Morgan is the ONLY firm. My thought is that these type of stories of abuse become viral.
Remember the Elliott Spitzer investigations of research and investment banking and late mutual fund trading. They started with one firm and eventually covered the entire industry.
Wall Street and Trust Banks are copycats!

This just needs to be talked about more openly and widely. It’s not as simple as right or wrong. For example, can certain investment services be made available if not paid a higher fee? We know that our minds too readily pay hidden fees but too readily dismiss explicit fees.

Are “lowest bidder” financial services, and professional services of any kind, the best?

If buyers reject a reasonable fee but it hurts them, the service is not then made available, what then? Annuities and long-term care seem to experience this dilemma. There are difficult and legitimate economic and pricing matters to be discussed. Predictably however, the moralizing stories take up most of the oxygen.

The NY Times is to be commended for the placement of this story, but it also reflects on their relatively shallow understanding of the issues and does little to clarify the options available for an otherwise confused public.

Then the industry has an eduction job and should dedicate efforts to that. But shrill moralizing and finger-pointing will block any educational efforts and open useful discussion.

The bank-wirehouses have spent hundreds of millions of dollars lobbying against putting investors first. JP Morgan has a lot to answer for, including stuffing even discretionary accounts full of its own products and acting in its own best interest rather than investors’ interest. But sadly, JP Morgan is not alone. None of the bank wirehouses comports well in this sense and those who purport to be “open architecture” are often getting shelf space fees or other revenue sharing kickbacks from some money managers — and these are not disclosed — at least not in a way that a normal investor could readily understand. They mislead with titles that sound advisory and pretend to provide advice but really they are selling whatever they need to get rid of. Don’t hold your breath for them to “educate” investors. They profit from the obfuscation they have practiced since the end of Glass-Steagall and will continue to do so until there’s real regulation on behalf of investors. Some bank could step up and lead here, actually putting investors first, but right now the independent RIA firms are the leaders here, not the banks.

Well said, Kate.

I don’t think it’s that clear cut.

Please tell me more! I’m by no means saying that Reg Reps in the field are all bad. Most try hard to do the best they can for their clients/customers and most want to put their clients/customers first. But that’s hard to do without firm leadership that is willing to step up and provide the support it takes to actually serve investors. And no wirehouse or wire bank has done so.

I am saying that the leadership of the wirehouse and bank brokers deliberately creates a culture sales, where the high “producer” is lauded; where investors serve the firm, not the firm serving investors. These firms are product manufacturers and sellers. When a sales organization deliberately — by title, action and how rep/advisors are compensated and ranked — creates a culture of product stuffing, high fees/commissions, hidden fees, unclear disclosure and caveat emptor, but pretends to give “advice” to investors, it is misleading. Signing and or retention payments, which must be worked off by selling investors more, and perhaps more risky or less desirable, but most certainly higher fee and commission products, add to these conflicts. It takes real leadership, starting at the very top, to put investors first, and that is missing.

So instead of pretending to give “advice” in the course of selling products, change titles to reflect the sales relationship. Plenty of investors are fine with that if they understand that is the relationship. Make it very clear what the relationship is and all costs the investor pays — not simply commissions but all the hidden fees. Separate advice from sales. When advice is given in a relationship, that should automatically be or become, a fiduciary relationship. (And no going back and changing to a “sales hat,” — once fiduciary, it stays fiduciary.
Prof. Ron Rhoades might say if there is advice given according to law already on the books from decades ago, the advisor is already a fiduciary, no matter what the registration or license. Once it is a fiduciary relationship, there are other principles: put the investor first, at all times. Make sure that investor costs are controlled, reasonable and clearly disclosed. Act prudently, competently and with due diligence on behalf of the investor. Avoid conflicts of interest; manage unavoidable conflicts in the investor’s favor. When a conflict can’t be managed in the investor’s favor, disclose it so that the investor clearly understands it and do not proceed. Disclose all material facts. It can be done — if there is leadership with the will to do it.

Kate,

I don’t think it needs to be a compulsory preamble to every conversation about RIAs vs. brokers to say: “Most try hard to do the best they can for their clients/customers
and most want to put their clients/customers first.”

It may be true but there’s a bit of the: “They do the best they can for global warming given that they choose to drive a Lincoln Navigator”...in that sentiment.

Or at the least, by not tossing out that caveat, it can be said that folks like you are exaggerating to make a point. And making a point is the best reason I know of to exaggerate.

Brooke

Good let’s engage with this topic. First, the best points need no exaggeration.

The “good” vs. “bad”/demonizing theme is very compelling but first, nothing is that simple and second, what a surprise that “we” are always good. Moralizing is just a rhetorical tactic and not factual.

Real problem identification, analysis and solving is always complex, multidimensional and hard. “Information is expensive” But our brains like real simple stories and moralizing – “They are all bad” is cheap and easy. Likely with little information value.

More realistic is to assume that everyone is equally virtuous and greedy, etc and driven mainly by the incentives they deal with. Regardless, the behaviors are the symptoms of the problem and not the real problems.

So we can ask what incentives are driving the behavior that appears to be harmful – with condemning classes of people?

We also have the hard evidence that the majority of investors are working with brokers. Far more than with RIAs. There would seem to be an incentive to understand why. learn from brokers maybe even partner with them somehow — rather than demonize them.

Demonizing anything or anyone just gets in the way of knowledge. But it feels good – at the moment.

Why some RIAs seem so intent on calling other the “enemy”, again is clearly factually incorrect and probably against everyone’s business interest.

Should advisors only use approaches that have double-blind, peer reviewed, experimental evidence to support — like doctors and some other professions? If not, why not?

How is “prudent” to be defined and operationalized? Over what period of time? By whom?

How will any of these ideas be measured and tested?

Everyone’s “pot” is “black” in financial services if we look at standards of professional proof used by other professions.

On June 28, 2013, JPMorgan Chase sent an internal email to ALL employees stating that both the employee AND their spouse are NO LONGER permitted to buy or sell stock, manage their existing portfolio, etc. – of ANY stock not just JPMC – unless the company performing the trade is on JPMC’s approved list.

Is that legal? Wouldn’t there be a grandfather clause protecting existing employees? This feels like the NSA’s PRISM project where JPMC would be able to WATCH every trade occurring by their employees.

I both expect and hope for a Class Action lawsuit brought against JPMC by employees as well as the respectable stock trading firms deemed unworthy by Jamie Dimon and his band of thugs.

Anybody have a copy of this email?

Brooke

Brooke@riabiz.com

I’m no defender of bank BDs, however, for compliance reasons, any BD I or bank was ever an employee of (decades ago) required confirmations on any security an employee traded — to prevent brokers or advisors or other employees from front running recommendations to clients, or using inside info from investment banking operations or underwriting or confidential information, and possibly for other reasons. However I don’t recall a prohibition such as this to an approved list. Though as a practice this might be an issue of enforcing a wall between the investment banking side and other employees — re appearance of or actual insider information. This is from an observer’s POV only — have no insight into the specific issue in JPM here. Personally, I don’t think it is a big brother thing here — there is a lot of confidential info at bank-BDs and I can see why there might need to be an approved list so there isn’t trading in companies they are in midst of investment banking – underwriting – etc relationships with. PS, some media companies also monitor trading of journalists who cover individual companies — for obvious reasons. Google “Foster Winans” from many years ago at WSJ. —

It seems professional, prudent and intelligent to try to understand the business and legal goals of this set of policies and set of problems it seeks to solve.

A sudden hostile reaction seems overly emotional.