Tag Archives: mom and pop investors

Best investment advice: Vet brokers yourself, because regulators aren’t doing it for you

Just because a stock broker has a license to do business doesn’t mean they’ve received a meaningful stamp of approval from regulators. Next time some financial person is pitching you for business, go back and read the stunning coverage of Mark C. Hotton, a guy who allegedly was fleecing investors for years as regulators sat back and ignored a stream of red flags.

Hotton is the fellow who fooled the Broadway producers of “Rebecca: The Musical” into thinking he’d raised millions of dollars in financing for them. The producers of Rebecca only lost $60,000 doing business with Hotton. Others haven’t been so lucky.

Hotton is in jail today, and it’s a joke when you consider that, after years of alleged stealing of millions from investors, he finally got caught because he fleeced a few big-shots from show-biz. It’s even more of a joke that U.S. prosecutors took a deep bow for their “lightning speed” sleuthing after catching Hotton 22 years after his first crime — which should have been a reason to keep him out of the brokerage business altogether.

I wrote about Hotton’s capers in a recent Bloomberg column. A week after that story, I wrote a second one, this time for TheStreet.com, about a fresh complaint against (the now-incarcerated) Hotton filed by Finra, which is the Wall-Street-funded regulator that is overseen by the Securities and Exchange Commission. There really ought to be a special judicial forum where the public can bring complaints against regulators who are utterly clueless.

‘Dumb Money’ Is Staring Most of Us in the Face

Americans are pretty much illiterate when it comes to finance. They don’t know how to read a stock trade confirmation and have problems figuring out how much commission they’re paying their brokers on a mutual fund sale.

For years, professionals on Wall Street have sneered at the public as “the dumb money.” Well, they may not be geniuses on Wall Street, either. But they’re right that retail investors could use some serious coaching.

A recent report by the Securities and Exchange Commission mapped out in 182 painful pages how little the public understands about finance (which suits some people on Wall Street just fine, by the way). I talk about the grim details in my latest Bloomberg View column:

 “Consider the profile of the 4,800 investors surveyed for the report, which concluded that they “lack basic financial literacy.” More than half had full-time jobs, 11 percent had part-time jobs, 70 percent had at least a two-year college degree and 63 percent had annual income of more than $50,000. We’re not talking about Mitt Romney’s indolent moochers here. The dumb money could be your neighbor. Or you.”

The results have inspired calls for financial literacy programs starting even in elementary school, but let’s get real. From the looks of things, school administrators don’t even have the resources for plain-vanilla literacy programs, let alone special classes in personal investing.

An alternative to new programs: At least get the public smarter about avoiding fraud. I have some ideas about that that you can read here.

USA Today Founder Has Good Advice for Investors, Misses A Couple Things

Every so often, the editorial page of USA Today asks me to weigh in with a brief comment on a column written by the newspaper’s founder, Al Neuharth. Today, Neuharth writes on the important topic of saving money for college or retirement, and keeping that money in the stock market.

Neuharth says “the stock market continues to be our surest, steadiest investment” despite its ups and downs. Maybe that’s true, which doesn’t say much for the other investments he doesn’t mention — mortgage-backed securities, bonds, real estate, and, before we know it, crowd funding.

But here’s the problem: Investors don’t think the financial markets are fair. They’re not only sick and tired of the motion sickness they get from high-frequency trading glitches that rock the markets. They’re sick of Wall Street lobbyists who have more power than securities regulators; they’re sick of insider trading; and they’re sick of powerful people in finance who can do the wrong thing and suffer minor repercussions. Or no repercussions at all.

My quote in USA Today this morning:
“The public will buy into Al’s good advice once they see that regulators are in charge of Wall Street — not the other way around. Confidence flows in fair markets.” Read article.

Vetting a Stock Broker? Pay Attention to Who’s Supplying the Records

Investors are spending more time checking on the backgrounds of the financial types who pitch for their business, and that — mostly — is a good thing.

The public used a regulatory database to check the records of 14.2 million stockbrokers and advisers last year, according to the Financial Industry Regulatory Authority, known as Finra, a self-regulatory group that’s financed by Wall Street. That’s more than double the 6.7 million searches in 2007, the year before the financial crisis began.

Nothing wrong with investors getting more vigilant, of course. But there are some important caveats about what investors get when they check in with a broker-vetting site.

Finra’s records don’t include lawsuits against brokers that aren’t considered “investment-related.” That means that a lot of brokers who are exposed to the possibility of big judgments have official records that say nothing about that exposure.

And then there’s the issue of the freebie websites popping up to help investors vet brokers. Check the fine print, and you learn that some of those sites get their revenues from advisors who pay to be featured. If you get it for free, and the broker pays to get his or her name in front of you on the site, can it really be investor-friendly?

I took a look at the broker background-checking business in my latest column for Bloomberg View. Read article.

Why Mom and Pop Investors Are Taking a Pass on Stocks

There’s a lot of talk about the individual investor getting out — and staying out — of the stock market, but a column that ran over the weekend in The Washington Post does a good job of putting together all the reasons why. Barry Ritholtz, who runs the finance blog The Big Picture, raises the question “What has driven the typical investor away from equities?” and writes:

“The short answer is that there is no single answer. It is complex, not reducible to single variable analysis. This annoys pundits who thrive on dumbing down complex and nuanced issues to easily digestible sound bites. Television is not particularly good at subtlety, hence the overwhelming tendency for shout-fests and silly bull/bear debates.”

 

Mom and pop investors have had enough of Wall Street scandals and the portfolio whiplash that comes with high-frequency trading, Ritholtz says. And even if Wall Street’s problem with being ethically challenged doesn’t bother you, the lousy returns of the stock market probably does. Read article.