DANTE: TURN UP THE HEAT: Our fraudsters of the week: CAUGHT

The reason we never put out Somebody Else’s Money in the mainstream hard cover book world was that we just couldn’t keep up with the crooks. So here we will give you the weekly investment frauds and their short stories, complete with a Dante’s Heat Index on a scale of 1-10.

Ever Work at Morgan Stanley and Have their Company 401k? A lawsuit filed Friday accuses Morgan Stanley and its board of mismanaging the firm’s 401(k) retirement plan and costing 60,000 employees hundreds of millions of dollars. The complaint was filed by a former employee and seeks to cover other workers. It alleges that the company picked inappropriate and high priced investments so that the bank would profit at the expense of its staffers. Dante’s Heat Index  6

The SEC Charges FRAUD Against a Hedge Fund Manager who Allegedly Scammed the Terminally ill. The SEC says the Manager and his firm paid terminally ill individuals to use their names on purportedly joint brokerage accounts so he could purchase investments on behalf of his hedge fund and redeem them early by invoking a survivor’s option. Donald Lathen of New York City Hedge Fund, Eden Arc Capital allegedly used contacts at nursing homes and hospices to identify patients with less than six months to live. He successfully recruited at least 60 of them by paying them $10,000 apiece to use their names on accounts. When a patient died, Lathen allegedly redeemed investments in the accounts by falsely representing to issuers that he and the terminally ill individuals were joint owners of the accounts. Lathen’s hedge fund was the true owner of the survivor’s option investments. Issuers paid out more than $100 million in early redemptions as a result of the alleged misrepresentations and omissions by Lathen and Eden Arc Capital. Andrew M. Calamari, Director of the SEC’s New York Regional Office said “Lathen allegedly put hedge fund client assets at risk by keeping them in accounts in his and the terminally ill individuals’ names rather than properly placing the hedge fund’s cash and securities in an account under the fund’s name or in an account containing only clients’ funds and securities, under the investment adviser’s name as agent or trustee for the client.” So, let’s see, that money belonged most likely to beneficiaries, siblings, kids… SO Latham allegedly stole somebody else’s money. Dante’s Heat Index 20 (yes, out of 10)

Goldman Sachs Head Trader Barred from the Industry Simply by Misleading Customers into Paying Higher Prices. NO!… Edwin Chin, the former head trader in residential mortgage-backed securities (RMBS) at Goldman Sachs generated extra revenue for Goldman by concealing the prices at which the firm had bought various RMBS, then re-selling them at higher prices to the buying customer with Goldman keeping the difference (and he increased his own compensation while doing it). Chin also misled purchasers by suggesting he was actively negotiating a transaction between customers when he was merely selling RMBS out of Goldman’s inventory. Chin’s gone from the business, thankfully, and is $400,000 lighter. Dante’s Heat Index 9

Whistle blower Sidestep Caught. Health Net, Inc., a California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistle blower program. What did they have to hide? Probably nothing, right? They agreed to an SEC cease and desist order and promised to try to get in touch with all the former employees to let them know that whistle blowing is a protected right. Sure, no monetary penalties. Dante’s Heat Index 4

SEC Charges Stockbroker and Friend with an Insider Trading Scheme to Profit in Advance of Two Major Announcements out of a Pharmaceutical Company. Paul T. Rampoldi and two other brokers at his firm were apparently tipped by a then-IT executive at Ardea Biosciences ahead of the company’s announcement of an agreement to license a cancer drug and later tipped him in advance of its acquisition by AstraZeneca PLC. They made approximately $90,000 in illicit profits by trading ahead of those announcements based on nonpublic information that flowed to them through one of the fellow brokers who learned it from the other after he was tipped by the IT executive. They would subsequently divide the profits among them. The SEC seeks permanent injunctions as well as disgorgement, interest, and penalties. Dante’s Heat Index 5

Defendant in SEC Insider Trading Action Found Guilty by Federal Jury in a Related Criminal Case. On August 17, 2016, a jury in federal court convicted Sean Stewart of insider trading and related charges. He is presently scheduled to be sentenced on February 17, 2017. In a scheme spanning at least four years, Stewart illegally tipped his father, Robert K. Stewart, about future mergers and acquisitions involving clients of two investment banks where Sean Stewart worked. The complaint alleges that his father, a certified public accountant, cashed in on the tips by placing and directing highly profitable securities trades ahead of the public announcement of these corporate transactions, generating approximately $1.1 million in illicit proceeds. Guilty, Guilty, Guilty and there’s an SEC action still pending. Dante’s Heat Index 7

Court Enters Final Judgment Against Boston-Area Defendant in Insider Trading Case. Patrick O’Neill, of Belmont, Massachusetts, was found guilty of engaging in insider trading in the stock of Wainwright Bank & Trust Company (“Wainwright”). O’Neill, a former senior vice president at Eastern Bank Corporation, apparently learned through his job responsibilities that his employer was planning to acquire Wainwright, and he then tipped Watertown, Massachusetts real-estate developer Robert H. Bray (“Bray”), his friend and fellow golfer with whom he socialized at a local country club. As a result, Bray purchased 31,000 shares of Wainwright stock. After the public announcement of the acquisition caused Wainwright’s stock price to increase nearly 100 percent, Bray ultimately sold all of his shares for nearly $300,000 in illicit profits. O’Neill pled guilty to a criminal charge of conspiracy to commit securities fraud and he was sentenced to one year of probation and a $5,000 fine. Bray went to trial and a jury returned a guilty verdict on one count of securities fraud for insider trading. Bray was thereafter sentenced to two years in prison, ordered to forfeit the proceeds of his illegal trading, and ordered to pay a criminal fine of $1 million. O’Neill and Bray were both criminally charged by the United States Attorney in Massachusetts for the same conduct. Bray’s SEC case continues. Dante’s Heat Index 8


Investor Psychology


Are financial advisors making a mistake in trying to steer investors away from making what seems to be a bad idea.  Take for instance the client who calls you today and wants out of the market entirely because they’re not comfortable.  Generally, we would point out the wisdom of staying invested, historical returns, unpredictability of market timing and a bunch of conventional wisdom we’re gained over the years.  After,  your collective wisdom is a big reason why they hired you, right?  But, are we missing something?

In a recent discussion with a large number of significant investors, something rather startling was pointed out to me.  It comes from the cognitive behavioral school of consulting, and represents a large portion of the poor perception of Advisors by the significant investors.

Humans are very rational when it comes to investing.  But rational is a qualifier that is certainly different from one human to the next.  The lead investor in the discussion maintained that “All behavior is purposeful. Sometimes what is irrational to an advisor is very rational when viewed through the eyes of the one doing the behavior. Perhaps the trick is to first understand how the behavior is rational for the person doing it, and then to intervene in a manner they find “rational”.  This, he said is where Advisors miss the boat.

Many Advisors try to get clients to see things as they do rather than to simply provide useful information they can use, or not use, on their journey.  The former is adversarial, the latter collaborative.

It seems a number of behavioral scientists have written about this adversary vs collaborator, such as Gary Applegate, Happiness is Your Choice, and  Sherry Cormier, Paula Nurius, and Cynthia Osborn. Interviewing and Change Strategies for Helpers.

 We tend to focus on the client’s financial needs, but clients have psychological needs as well, which may be much more important to them.  If we are to take a client-centered approach, shouldn’t we be looking at the client’s world through their eyes?

We ask clients for referrals, but what does a referral mean if the referring person does not know the needs, mind, psychology and objectives of the referee?

The lead investor in this discussion said, “Both clients and advisors arrive at the first meeting with a set of expectations for the roles they and the other person will be fulfilling. Perhaps the advisor’s job (after hearing why the client is there) is to facilitate the client expressing their expectations, to share the advisors expectations, to provide a realistic picture of process/outcomes, and to work with the client to resolve any differences in role expectations or relationship demands. Thus, the advisor is working to form a working alliance with the client to meet the needs of the client rather than working on “selling” the client on the advisor’s investing philosophy.”  Agreement prevailed.

The result of this discussion was that investor consensus said a truly superior financial advisor can see the world through the eyes of the client without judging the client. By working from this shared worldview the advisor will be more effective.

Like each of us, our clients have a reason for everything they do.  Shouldn’t we take the time to really get to know them, their likes and dislikes, and what makes them tick.  Like us, investors believe they are doing the things that are best for them.  Just because we’ve been in this business more than a few years, why do we have the right to judge our client’s actions or decisions without first actually understanding them?

Comments welcome.  More on this next time.    John

The Rube Goldberg Theory of 401(k) Plan Fee Disclosure

By Mark Mensack, featured guest contributor

How would you feel if after buying a new car you discovered you paid too much? Odds are you would be upset, but paying too much for your car has no effect on your driving it for years to come. Paying too much for your 401(k) plan, however, is like a leak in your gas tank; the ultimate effect is that neither is going to take you as far as you need to go.

Regrettably, there have been many leaky plans since the inception of the 401(k) back in the 1980s, but not until 2012 did 401(k) service providers have a legal responsibility to disclose all of their fees and compensation. While leak implies small, according to the DOL, 1% in unnecessary fees over an average 35-year working career could reduce a participant’s account balance at retirement by 28%!

The fee disclosure rules enacted in 2012, which were intended to plug the leak, are flawed. Reminiscent of the infamous “it depends on what the definition of the word ‘is’ is,” one flaw depends on what the definition of “disclosure” is. Some service providers apply the Einstein theory of disclosure, while others use the Rube Goldberg theory.

Einstein’s theory is based on his belief that, “401(k) Fee disclosures should be made as simple as possible, but not simpler.” His actual quote was “Everything should be made as simple as possible, but not simpler”.

For example, if a service provider applying the Einstein theory needed to disclose compensation amounting to $496,000, the disclosure would read: We receive $496,000 in compensation.

The Rube Goldberg theory is named after Rube Goldberg, a cartoonist well-known for his drawings of overly complicated mechanisms used to accomplish very simplistic tasks. These mechanisms were known as Rube Goldberg Machines, and if you’ve ever played the game Mousetrap, you’ve got the idea.

Applying the Rube Goldberg theory to the same $496,000 disclosure, it would read:

In 2011, when viewed in relation to total MSSB client assets of in excess of $1.6 trillion, the payment made by each such service provider…equaled an amount of not more than 31/10,000 of one basis point (otherwise expressed, 31/1,000,000 of one percent). We do not believe that such payments were made in connection with retirement plan business specifically, and were certainly not made in connection with any particular retirement plan, but, for perspective, the amount of retirement plan assets included in the total MSSB client asset number set forth above is approximately $112 billion.” 

The Department of Labor recognizes the Rube Goldberg theory effect writing, “Anecdotal evidence suggests that small plan fiduciaries in particular often have difficulty obtaining required information in an understandable format, because such plans lack the bargaining power and specialized expertise possessed by large plan fiduciaries.”

In order to prudently remedy this flaw, one might expect the DOL proposal to prohibit the use of the Rube Goldberg theory, and mandate that all disclosures be as simple as possible, but not simpler. Absurdly, the DOL proposed a guide, because “a guide would help small plan fiduciaries locate important information disclosed in multiple, often long and complex documents…”

In a second act of folly, the guide is to be written by service providers, even those adhering to the Rube Goldberg theory! DOL’s reasoning is that service providers “are in the best position to identify the location of information that otherwise may be difficult for a responsible plan fiduciary to find in multiple, highly technical or lengthy disclosure materials.”

The DOL proposal amounts to a Rube Goldberg remedy to solve a Rube Goldberg flaw! As a result, at retirement some of you are going to find that your 401(k) isn’t going to take you as far as you need to go.

Share this article with your employer, or better yet, your senators and congressional epresentative. If you don’t motivate them, no one else will and it’s your retirement income security that is at risk!

Originally posted at Paladin Registry.

About the Author: Mark Mensack, AIFA®, GFS® is affiliated with Fiduciary Plan Governance, LLC. and the Centre for Fiduciary Excellence (CEFEX) where he serves as an independent fiduciary consultant, and a CEFEX Analyst. He has nineteen years of financial services experience; fourteen as a financial advisor with broker-dealers, and five as an RIA. His expertise is in the area of fiduciary best practices, 401k hidden fees and ethical issues in the retirement plan marketplace. Mark also writes the 401k Ethicist column for the Journal of Compensation & Benefits and is listed among the 2013 Top 100 Most Influential People in the 401k Industry; some of his work can be found at Mark@PrudentChampion.com

Financial Rock And Roll: “That’s What I Want”


Great musicians give us advice on investing.

Rock Epigrams.

“You can’t always get what you want.”

by John Lohr (with Ian Lohr)

When one speaks of investors — individuals, not banks or institutions — there is usually a distinction made between the so-called “Mom and Pop” investor (typically best served by choosing relatively low-risk investments), and the so-called “high-net-worth” investor (who may be more open to risk). Most people think of high-net-worth investors as bankers or brokers — the Warren Buffett type of investor. But there is also the Jimmy Buffett type of investor: popular musicians often have substantial levels of wealth to invest, and thus too are considered high-net-worth.

High-net-worth investors are expected to take a greater interest in their investments, and to be better informed about them, than the average investor. So what kind of advice in money management are the great musicians of rock and pop able to give us? Perhaps surprisingly, perhaps not, much of the advice is fairly bad — if the songs alone are taken at face value.

Pink Floyd is one of the biggest names of seventies rock — their 1972 album “Dark Side Of The Moon” remains a best-seller after more than four decades. In their famous song “Money,” singer David Gilmour suggests squandering one’s wealth in heedless spending. He sings of a “new car, caviar, four-star daydream, think I’ll buy me a football team.” No word about thinking of the future. Just instant gratification. In their everyday lives, however, the members of Pink Floyd have been very successful in managing their money. Rather than buying that football team, they invested in real estate, antiques, and film projects. They also reinvested in their stage show, adding spectacular elements including laser beams, giant disco balls, and a huge inflatable flying pig.

Among the other giants of classic British rock and roll is the group Queen. In their penultimate album, 1989’s “the Miracle,” Freddie Mercury sings “I want it all and I want it now.” Mercury and his bandmates parlayed their success — tempered by Mercury’s 1992 death from long-term illness — into a multi-billion dollar media empire, including feature concert films, elaborate high-energy international tours, and even a recent Broadway musical.

Fans of eighties rock will no doubt remember Dire Straits, headed by noted guitarist and songwriter Mark Knopfler. Their song “Money For Nothing” spawned one of the most influential music videos of that decade, featuring early computer animation. In this song, Knopfler sings of the ideal financial situation: “That ain’t workin’ that’s the way you do it, get your money for nothing…” Knopfler has made it abundantly clear that the song is intended as satirical criticism on the public idea of the Rock Musician. Rather than getting “Money For Nothing,” professional musicians work as hard or harder than the average white-collar office worker. The same could be said of investors.

The marriage of Rock and Roll and rolls of dollar bills is not a new one. Almost five decades ago, a rather obscure soul singer, Barrett Strong, first sang of his opinion that “The best things in life are free, but you can save them for the birds and bees, give me money…that’s what I want…all I need is money.” The song became the first hit single on Motown records, and Strong found a career as a hit songwriter. His original version is perhaps not as notable in itself as are the other singers and groups who have performed or recorded it, including the Beatles, the Rolling Stones, Ike and Tina Turner, the Supremes, and many more.

As for the eponymous fab four themselves, perhaps their most concise comment on money is a negative — “all you need is love.” Compatriots on the British music scene of the time, The Rolling Stones, would have been well served to have listened to their own advice: “you can’t always get what you want, but if you try some times, you just might find, you get what you need.” Rather than concentrating on what they needed, they wasted their money in a series of well-publicized encounters with massive amounts of alcohol and dangerous illegal substances.

Speaking of booze and drugs, psychedelic songstress Janis Joplin has never been known for her fiscal responsibility. Her investing strategy appears to be related to prayer (“Oh Lord, won’t you buy me a Mercedes Benz”) and game shows (“Dialing for Dollars is trying to find me”). This blind hope for Divine guidance and exceptional luck is unfortunately emblematic of the mindset of many a modern investor. While Joplin did not survive to collect one, this is hardly the attitude to take with one’s 401(k), and certainly serves as a cautionary example.

 Musician, songwriter, playwright and humanitarian Cindy Lauper sang “Money Changes Everything” in the eighties. Today that theme is echoed every time someone buys a lottery ticket.

And of course, there are a few other rock epigrams about money, especially appropriate for hasty investors, that would be best to avoid. One might be “na-na-na-na, na-na-na-na, hey hey hey, goodbye”. These days perhaps the best rock song to express how Wall Street works is by Judas Priest: “breaking the law, breaking the law.”

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Written with my son, Ian Lohr, musician and writer


By John Lohr

Nothing in the Advisory world would happen without sales.  If a sale didn’t happen, Advisors would have no clients.  Recently FI360 put out a podcast that concluded that the DOL in their new ‘fiduciary” rule were clearly distinguishing between sales and advisory functions.  I guess the implication was that sales are sales and advisory is advisory, and never the twain should meet.  How wrong that is—the two functions cannot be effectively untangled.  The hardest part of the Advisory business today is managing portfolios and growing an Advisory business through sales at the same timeStriking this delicate balance is essential.

With all of the technology currently available, what does the advisor really provide?  One answer is the introduction of human elements, the level of interaction and personalization no automatic or indexed system can replicate.  The most important human element today’s advisors need to demonstrate to us by their actions is Trust.  The client needs to know that their advisor has their own best interests in mind, and that they will make the best decisions for the investment future.  I believe that if an Advisor invests in their profession by taking the time (and money) to get educated and well informed about the investing world, they take steps toward the projection of trust.

There are plenty of research providers, third party managers, mutual fund wholesalers, Advisory programs and internal and external money managers.  There are scads of products; many of them incomprehensible.  There are product providers and distribution channels.  Do they all provide the training Advisors need?  No.  If an Advisor is at a firm, do they get adequate training?  Not a chance. There is too much pressure on production and revenue generation.

How about the Regulators? Look at the licensing requirements.  Can Clients get reassurance that their “licensed” Advisor is adequately trained to work in the Client’s best interest?  No; licensing courses are mandated by Regulators, yet they are little more than archaic technical information, legal jargon or reduced to a High School or Junior College level.  But that is not what the client needs: they need a highly trained expert that they can be certain of.

A well trained professional, knowledgeable about investing, who is a good communicator that works in the clients’ best interests, AND is a business builder is not easy to find.  There are more than 350,000 licensed financial representatives in the US today.  There are 400,000 insurance sales agents (sure, there’s some overlap).  How many have a thorough grasp of both investing strategies and client-level sales communications?  Nobody knows.  The point is that the barrier to entry in the financial advice world is nominal to ridiculously low.  So, Clients need an evaluator to distinguish among them.  Start with “Do you think you can trust THAT advisor.”

Financial Advisors seek ways to differentiate themselves from the herd.  They look to designations, and affiliations, many not worth the frame they’re hanging in on the wall.

A few, very few have genuine academic merit.  Clients may wish to follow the ancient Roman saying, Caveat Emptor.  “Let the buyer beware”.

There are a lot of self-designation programs out there.  Most of them  do little more than add letters to put after a name.  I’ve seen a lot of financial advisors with a string of alphabet soup after their name, to try to “distinguish’ themselves.  It doesn’t mean anything to us clients.

What does matter to us and should, is that our financial advisor has taken the time and expense to get educated and stay informed so that they can put forth the best solutions to their clients that they can.  If an Advisor has invested in your profession, it will show in how they treat their client, how they advise the client.  Yes, there are glib charlatans out there that are a phony as a Cheyenne dollar, but there is nothing we can do to prevent that.

If an Advisor wants to build trust among clients, they need to live it.

Sure, it may be “all about sales” but given time, training, communication and sincerity, sales will occur.  It’s hard to do in today’s financial world, but Advisors should try not to be hasty, do invest in themselves and believe in themselves.

If they project that, they’re steps closer to building Client trust.

Parts of the foregoing appeared in SEEKING ALPHA


Financial Advisors: Brave New World: Hardly

by John Lohr

It doesn’t matter whether there is a DOL Fiduciary rule coming next year or not.  If you are giving investment advice to a client who relies on that advice and pays you for it, then you will be found to be holding their money in trust for them (see a common law definition of “fiduciary”.  Whether you are a broker, insurance agent. investment advisor, independent planner or otherwise, it doesn’t matter, you will be found by courts to have responsibility akin to fiduciary.  Remember, “fiduciary” is just a convenient label applied by regulators and the media.

Look back to 1986.  In Stanton v. Shearson Lehman, 7 E.B.C. 1579. a Shearson broker made non-discretionary investment recommendations to Plaintiff, Paul Stanton, who was self directing two retirement accounts from his company’s employee benefit plans.  The broker then executed the transactions on the unsolicited recommendations, and made commissions of $87,000 in 1983 alone.

The court said, that ERISA black letter law was notwithstanding:

“The question of law posed by the pending motion — whether a stock broker exercises “any authority or control respecting management or disposition of [ERISA plan] assets” when he or she executes transactions on behalf of an ERISA plan pursuant to instructions which were based on his or her specific, unsolicited recommendations where the client is dependent upon and relies on the broker’s special expertise — is one of first impression which the court answers in the affirmative. Even though a client may have the final word on how his or her assets will be traded and is, thus, technically in control of the assets, it is the stock broker who is effectively and realistically in control of the assets when, for whatever reason, the client merely “rubber stamps” — follows automatically or without consideration — the investment recommendations of the broker.

The Firm, Shearson, was found liable under ERISA for not diligently and prudently training their broker.

“The brokerage firm will not be “directly” liable under ERISA unless it fails to train and supervise its broker with the care, skill, prudence and diligence that a prudent brokerage firm would exercise, and such failure causes a loss to an ERISA plan (29 U.S.C. § 1109).  Thus, if a brokerage firm is reasonably diligent in training and supervising brokers assigned to ERISA accounts, it will not be liable under ERISA.”

It is not a stand alone case, there are cases upon cases dealing with defendant accountants, lawyers, Boards of Directors, trustees, brokers, advisors and others having ethical due care, best interest and common law, state law or  federal law fiduciary-like responsibilities.

If there is a moral to this story, it is that it doesn’t matter whether your client is an employee benefit plan, corporation, foundation, endowment, individual investor, you, the advise giver have an ethical , moral and legal responsibility to that Client.  Period.

In the forefront will be this DOL “Fiduciary” or “Conflict of Interest” Rule next year.  Alone, it is unlikely to generate lawsuits against advice-givers, but, it will raise your visibility substantially.

Don’t make the same mistake Shearson made.  Get trained.  Demand it.




by John Lohr

Say you’re an investor. What do you do in the wake of BREXIT? Bail out? Buy? Play ostrich(it’s bird analogies today). What of you’re a Financial Advisor? Are you hiding under your desk hoping clients won’t call? Or, is it lunch at Harry’s? Plan Sponsors or Trustees? Ignore what’s going on?

It’s interesting that while the stock market money was on “Remain”, the smart economists and historical politics analysts felt that the Britts would become isolationist. Is this the end of the EU? I Are the Global Market tanking to -0- ? Should we laid up in US stocks? Seriously, No One Knows. So what do you do?

Let’s start with: This too shall pass. In the last 87 years there have been five periods of US stock market declines that lasted over 12 months:

  • August 1929 to March 1933, (-86.1%)
  • May 1937 to June 1938
  • November 1973 to May 1975
  • July 1981 to November 1982 (-27.1%)
  • December 2007 to June 2009

The recovery rate was 100% in all cases. Is BREXIT a “game changer“, “unprecedented”? That is unknown, but highly unlikely.

So what do you do as an investor or a Plan Sponsor when market turbulence rocks your 401k?

First of all, in the words of Douglas Adams: “Don’t panic”.Communicate with your Financial Advisor(s). Many of them have large analyst staffs and economists that are paid plenty to opine on these things. What are they saying? Don’t read mainstream media: USA Today, CNBC, Fox news, etc. They’re in the business of marketing and selling advertising; fear and excitement sell advertising. They thrive on sensationalism. BEWARE: There’s a lot of bad advice out there , especially on TV. Watch for product pushers looking to exploit uncertainty as a selling opportunity. Don’t trust these vultures.

Markets feed on uncertainty and fear. Is it a buying opportunity or a wholesale time to fly to cash or gold? Probably neither, except in moderation. Buying in is for risk takers and speculators. Selling is for the fearful. Remember that for every buyer there is a seller. For every analyst that says “Sell US stocks and Buy Gold”, there’s an analyst that says this is the “Mother of all buying opportunities”

Financial Advisors: You are supposed to be a rock on which your clients can have confidence. They perch on your very words (sorry !). You should Communicate with all of your Clients. Every.Single.One.of.Them. Be sure to take all of the phone calls from your clients, also. Be Calm and ease clients fears. Clients want compassion. They want you to listen to their concerns. They want to know you’re keeping your pulse on what is happening and, if necessary, will take some action of their behalf. They want to know that you care. Listen more than you talk. If you’re composed and at ease, it will be reflected in your tone of voice, Believe me. Clients expect you to remain calm in crisis (or more likely, perceived crisis). That is a fundamental cornerstone of what their trust in you is founded upon.

I suggest you don’t try to predict what will happen (You have a 50% chance of being wrong. Understand: No one. Repeat No one knows exactly what the result of BREXIT turbulence will be, or when it will be. No one.

Tell your Clients that you and they together crafted an investment philosophy tailored to their goals and comfort zone, and you’re going to stick to that. Clients want consistency.

A Vanguard Spectrum 2014 research report identified that the top reason Clients pick an advisor” “Is that they believe the Advisor is honest and Trustworthy.” Another Spectrum Study in 2015 showed that the top reason clients change advisors is: “Lack of proactive contact.”

Until next time,


A Financial Advisor Specific version of this article appears Monday, June 27 in www.seekingalpha.com as “How do you build Client Trust in turbulent markets?”  Check out our resources section of this website for some good tips on this topic.

Seeking Alpha Article

As a Fiduciary expert, I am asked from time to time to contribute articles to websites and other publications on topics all fiduciary need to know. Currently, I am now a contributing author to SEEKING ALPHA.  The first topic I chose to write about was one of my previous blog posts here…How to you quantify the value of advice (see below or click on link).  I will start to post my articles in my resource library under Seeking Alpha.  If you are not already an email subscriber to this blog, please sign up so you can receive notifications when new things are posted.





What about the SEC statement that they will be out with their own Fiduciary Rule in April, 2017. First off, don’t hold your breath.

What about the SEC saying that their Rule will cover all accounts, including retail? See “First off” above. Besides, if you’re a client with money entrusted to someone else, don’t you expect that their recommendations are in your best interests? If you’re a Financial Advisor, aren’t your recommendations expected to be in the client’s best interest?

Most of you anyway? Look, “Fiduciary” is a label. Regulators like labels. The test is where the rubber meets the road, when the pedal is to the metal, when the race in on… Wait, the Indy 500 is over. Enough auto analogies. Regulators can bring enforcement actions, but don’t expect the DOL to show at your doorstep soon. They depend on client complaints to examine an Advisor, and they don’t have a lot of examiners. DOL likes process, and forms to file. At least the SEC audits firms and has a website where they invite investors to “check out their brokers and advisors”. They have the staff to see Advisors every 6-8 years (unless you’re recidivist). The SEC likes disclosure That helps a lot, right? How many clients do you have that have read your ADV Part 2 in full or browse the SEC website? Regulators make money from fines and levies for not following their un-clarified rules. Together, let’s put them out of that business. Black letter law means nothing until it hits the courts. Nothing. What we call standards of Prudence or a fiduciary standard is decided in the courts. A Fiduciary Rule on the books is a ho hum. Clients have expectations; Advisors have responsibilities, let’s line them up, hit the starter and go (Sorry, no more auto. Promise.)

For Plan Sponsors, let’s get your documents in order, your service providers lined up (not in an auto race way), make sure we all know what you and we have to do. Then we do it. Simple? No, I didn’t say that, but it’s critical. We need to do our part to solve for the retirement crisis in the country (yes, there is one!). We have a legal, no, a moral obligation to help our employees make the most informed investment choices from the most suitable, cost effective risk adjusted return fund vehicle line up we can. And then, we run it by the book in the cleanest conflict environment possible. Maybe we can help.

For Financial Advisors, eliminate even the perception of conflict, educate Sponsors and Participants and take more time to do it right. Give your Plan clients, their participants and beneficiaries the “Value of Your Advice.” I know we can help there, too— by detailing for you the premises of THE FIDUCIARY SALE©.

For Participants, the employee benefit plan is supposed to be managed solely in the best interests of not the Plan, but its Participants and Beneficiaries. And that’s what we want to help make you: the beneficiaries of this modest movement to get everyone considering “The Ethical Treatment of Somebody Else’s Money.”© Later, John

Fiduciary Rule spawns lawsuits—Surprise, Surprise

About those lawsuits. Who are bringing the suits? OK, besides lawyers. Plaintiffs are consumers, participants, investors, Plan Sponsors? Nope, big business: the National Alliance of Fixed Annuities, the Chamber of Cmmerce (Chamber of Commerce? Go figure!) the Securities Industry and Financial Markets Association, the Financial Services Institute, the Financial Services Roundtable, the Insured Retirement Institute and four Texas groups,including the Texas Association of Business. Several of the suits including the last one by the National Alliance of Fixed Annuities. (I wonder what they charge a Fixed Annuity to join the Alliance?) claim that forcing a broker to disclose to talk about something they don’t want to talk about—their fees—is a violation of free speech.
Seriously??. I took a First Amendment Course back when there was only one amendment and I do not remember the right to not tell someone how much I was charging him for anything. If he were still alive, I’d ask my personal first amendment expert—George Carlin. Only this time, the Seven Dirty Words are, “What are you trying to hide, Bozo?”
The fact that the first suit was filed in Texas, I think says something. (See Johnson County Cattle Wars, 1892). The fact that the lawyer was Eugene Scalia, son of Supreme Court Justice Anthony is also telling.
“Fiduciary is a very familiar and important word in the legal lexicon,” Scalia said, “and DOL has given it a meaning that is unrecognizable.” What the Counsellor is missing is the fact that the word has a very specific investment definition in ERISA dating to 1974 and in English Common Law, dating back to 1066. The suits also allege that the DOL’s fiduciary rule would “upend” the “well-developed regulatory framework” currently in place consisting of securities laws enforced by state and federal regulators, and that DOL’s rule will have “harmful consequences for retirement savers, small businesses, and tens of thousands of businesses.”
Quoting the Consumer Federation of America, “ naturally firms that have profited handsomely under the current system find it threatening. Despite their oft-professed concern for low- and middle-income savers, it is those billions in excess profits that this lawsuit is intended to protect.”
The suits also say that Retirement savers will be closed out of services they like, “Retirement savers have been able to obtain these services through a variety of arrangements that are tailored to their needs, income levels, and preferences, and have the option to enter a relationship that is fiduciary, which may entail higher costs, or non-fiduciary, which may have lower costs” A non-fiduciary relationship may have lower costs?? What, like an annuity?
The collective lawsuits have no chance—None—other than to generate revenues for lawyers.
Until next time, Regards….