W.C. Fields said, “Never give a sucker an even break”. He could have been a Wall Street executive.Industry executives may not refer to investors as suckers, but they certainly treat them like “gullible consumers”. For example, they convince millions of Americans to invest trillions of dollars with their companies.
Then they use revenue from investor assets to rig the system to benefit companies. Investors let it happen because they continue to buy what these companies are selling. Sounds pretty gullible to me.
The latest example of this one-sided battle is financial advisor ethics. The industry wins if the rigged rules remain the same. Investors win if there is one ethical standard that protects them from Wall Street’s predatory business practices.
Most investors do not know there are two ethical standards that apply to financial professionals. I am going to describe both of them then I will describe how Wall Street executives manipulate the truth to protect company revenues and profits.
Real financial advisors hold one of two registrations. They are Registered Investment Advisors (own their own firms) or Investment Advisor Representatives (are registered with RIAs). These registrations permit them to provide financial advice and ongoing services for fees. The registrations also make them financial fiduciaries, so they are held to the highest ethical standards in the financial services industry.
Stockbrokers and other types of representatives (reps) hold securities licenses that limit them to selling investment products for commissions. Based on licensing, they are held to a much lower ethical standard that is vague, confusing, and difficult to enforce.
You might ask yourself why Wall Street executives do not want one, higher ethical standard for advisors and reps? How does the standard damage them? And, why are they willing to lie to protect their interests?
Wall Street executives have testified reps sell investment products, but they do not provide financial advice. This is major news for investors who believed the advice they were following came from real advisors. Based on this distinction, selling versus advising, Wall Street wants reps to be held to lower ethical standards. I believe the executives are committing perjury for the following reasons.
I have surveyed thousands of investors who bought investment products from sales reps. 98% of them believed they were dealing with real financial advisors. Why? The reps told them they were advisors because it reduced sales resistance and helped them sell investment products. Company executives know this is happening, but they ignore the problem for three reasons. First, they have no control over verbal communications between investors and advisors. Second, investors have no way to prove this deceptive sales practice occurred. And third, their companies make more money and they are paid bigger bonuses.
There is an even bigger reason why I believe the executives are committing perjury. Real financial advisors provide investment “advice”. Sales reps provide investment “recommendations”. I have never surveyed one investor who could tell me the difference between advice and recommendations. That’s because there is no difference and the executives know it. Advising an investor to buy a mutual fund or recommending the fund is the same process. It is my contention, if investors cannot tell the difference, there is no difference.
Wall Street makes more money when investors are confused. It makes less money when knowledgeable investors make informed decisions. Consequently, Wall Street spends millions of dollars a year rigging the system by fighting higher ethical standards and mandatory disclosure requirements for its 650,000 sales representatives.