When your investment firm or brokerage answers to Wall Street, whose interests do they have in mind when they place you into an investment?
Most of the big retail investment banks and brokerages are publicly-traded. This means that they have stockholders and a board members to answer to. This means that the company looking after your assets answers to Wall Street. What does Wall Street expect from publicly traded companies? The answer is PROFITS! Don’t get me wrong, there is nothing wrong with profit. However, when a firm’s stock is not meeting expectations and they need to generate profits, where do you think that money comes from? If you guessed FEES, sales charges and commissions, you are correct!
Can you say ‘Conflict of Interest’?
Large banks were forced to buy (or bailout) large investment firms by the Federal Government in 2008 without looking at their balance sheets. It’s like purchasing a fully furnished home in New Orleans sight-unseen on Craigslist for $500,000. Good idea? I think not. The Fed promised to cover any losses with your tax money. The Fed gets a little help from the firm’s account holders as they charge fees, trade excessively inside accounts, and receive commissions from mutual fund companies. (more…)