Articles

Vanguard Group is popular with investors, but not all its employees

Over the years, the mutual fund giant the Vanguard Group has had no peer among financial companies when it comes to goodwill from customers and the media. It regularly dominates various “best” mutual fund lists put together by financial publications. Founder John C. Bogle is so celebrated for his focus on low costs and doing the right thing for the small investor that he’s frequently referred to as “Saint Jack.”

So why is a vocal collection of current and former employees putting so much energy into blasting the heralded operation? I address that question in my latest column for TheStreet, which you can read here.

Wall Street’s unique way of “protecting” small investors

Is the person who handles your money a stock broker or an investment adviser?

It makes a difference. Investment advisers, who are registered with the Securities and Exchange Commission, are held to a fiduciary standard, which means they have to put your interest ahead of theirs. If an adviser is choosing from a list of 5 similar mutual funds that might be suitable for you, he or she can’t pick the one with the biggest fees.

Brokers, who are registered with the self-regulatory organization Finra,  can look at that same list of 5 suitable funds and pick the one that puts the most money in their pockets. Regulators who watch over retirement funds at the Department of Labor don’t like that brokers can get away with that, and have proposed a rule that would force them to put your interests first just like advisers do.

Wall Street has been having an institutional temper tantrum over the idea that its brokers might have to put customers’ interests first. And the industry has actually concocted an argument that putting customers’ interests first would not be in customers’ best interest. I’m serious.

You can read about it here in my latest column for TheStreet.

Lost money in the market? Wall Street says it’s your fault

Check out your securities firm’s pitch in TV and print ads or on its web site. Chance are your broker has painted a picture of a paternalistic organization that’s devoted to doing the best thing for you and your portfolio over a period of many years.

But don’t count on that if you wind up facing them across the table at securities arbitration — your only choice in an industry that won’t open an account unless you agree to give up your right to sue in court. Lose money after broken promises that a product is safe or that a broker will be watching over your account, and you may quickly learn that all those assurances were nothing but fluff.

In my column today for TheStreet, I talk about the ways in which Wall Street tries to wiggle out of its responsibilities to its customers, arguing among other things that customers are the ones obliged to monitor their accounts. You can read it here.

Never buy a financial product that’s 13 words long, and other lessons from the SEC’s case against UBS

Last week’s $19.5 million settlement between investment bank UBS and securities regulators is just the latest example of why Mom and Pop have no business getting involved with Wall Street’s most convoluted creations.

The Securities and Exchange Commission said on Oct. 13 that UBS had given investors false or misleading information about the structured debt securities known as “Medium Term Securities Linked to the UBS V10 Currency Index with Volatility Cap.”

Products with interminable names often wind up being products that are too complicated for a math Ph.D. to understand, never mind the average investor. (Or their sometimes hapless brokers, who sometimes whine like babies that they’ve been duped by their firms when products blow up.) You can learn a lot of lessons by examining the flaws in the UBS V10. I talk about those lessons in my latest column for TheStreet, which you can read here.

 

Wall Street Will Only Go So Far to Help Older Investors

State securities regulators unveiled a plan at their annual meeting last week that zeroed in on the role stockbrokers can play in sounding the alarm that a senior is at risk of being ripped off.

The securities industry and its regulators have been tripping over themselves trying to make things safer for elderly investors. But the new proposal by The North American Securities Administrators Association (NASAA) may have gone too far for Wall Street’s liking.

Stockbrokers say they would like to be able to tell authorities when they suspect that an elderly client is at risk of financial exploitation. So NASAA and others have been working on laws and regulations that would allow brokers to report their suspicions without violating privacy laws. Various proposals also have allowed brokers to decline to execute a transaction for 10 days if they suspect something fishy is going on.

The NASAA proposal would make it mandatory for brokers to report their suspicions. But it’s likely that the industry won’t go for that idea, preferring instead to have the option of looking the other way when they suspect financial abuse.

You can read my story for TheStreet here.

Former Morgan Stanley Broker Sues Over Arbitration Policy

A former broker at Morgan Stanley has filed a class-action race-discrimination complaint against the company, accusing it of making “an end-run around the civil rights laws” with a new policy that bars employee participation in class actions and forces civil rights claims into private arbitration.

Kathy Frazier said in her complaint that African-Americans were underrepresented in the ranks of brokers at Morgan Stanley and were paid “substantially less” than their counterparts.

Ms. Frazier previously worked at Goldman Sachs and Merrill Lynch and has an economics degree from Amherst College and a master’s degree in business administration from the University of Pennsylvania’s Wharton School of Business. I wrote about Morgan Stanley’s new policy for The New York Times DealBook. You can read the story here.

S.E.C. and First Eagle Investment Reach $40 Million Settlement

The Securities and Exchange Commission said on Monday that it had reached a $40 million settlement with a New York-based investment adviser over charges that it had improperly used mutual fund assets to pay brokerage firms for the marketing and distribution of its funds.

The case against the investment adviser, First Eagle Investment Management, is the first brought against an asset manager under an SEC initiative that aims to protect fund shareholders from paying for marketing expenses that should come out of the firm’s own assets.

I wrote about the settlement for The New York Times DealBook. You can read the story here.

Vanguard Group Fires Whistleblower Who Told TheStreet About Flaws in Customer Security

The Vanguard Group, the world’s largest mutual fund company, has fired a whistleblower who shared information with TheStreet about deficiencies in the company’s customer account security.

Karen Brock, a client relationship administrator in Vanguard’s Scottsdale, Ariz., office, had told me that customers could access their Vanguard accounts even after entering typographical errors in their personal security answers. In my own account at Vanguard, I have repeatedly tested her assertions and found them to be true.

Brock also had detailed the complaints of a customer who said that he had asked his son to mimic his voice to test Vanguard’s “Voice Verification System.” Vanguard’s system allowed the son to gain access to the father’s account, Brock said. She also shared an internal training document where the names, email addresses, phone numbers and account numbers of several current or prospective clients had evaded the redaction process.

You can read my article about Brock’s firing here. You can see the original article that led to the firing here.

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