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Ethics, Disclosure and Your Value

I find myself writing this due to all the problems I see daily in this industry. Optimist Capital was born because I wanted to operate to the highest ethical standard possible and I wanted to protect my clients from bad actors, that they as well as I have had the displeasure of dealing with. We have covered many times the issues of Annuities and Mutual Funds, we won’t revisit those here, rather we are going to dig deeper into Advisors and Firms that do not disclose their inappropriate activities as required or in some case disclose activities which should be signs that you should run away fast.

Let’s start with the disclosure part. The first thing you must do with every Advisor/Broker/CFP etc. is to look them up in brokercheck.finra.org. If they have disclosures read much more closely. It would shock most of you to know, that many of your Advisors have been found to do such horrible things as create documents in your name in order to transact business without your interaction, putting people in investments which are criminal or inappropriate (Annuities are the usual culprit here). In the worst cases we have found folks that have lied to maximize commissions or actually stolen from clients through sales of conflict laden investments. These individuals are still handling money, and still out there selling to their clients or potential clients. We come across them daily.

Though the individual’s disclosures can be readily found, we find that Firms, through ineptitude or just plain criminal actions, do not disclose the inappropriate actions of their employees. There is a specific section within every Investment Advisers’ brochure that states: Disciplinary Information. Often, a firm will employ an individual with disclosures and fails to report in that section about that individual or action.

The second part of this would be Firms that make it clear they care little about you. A great example of this is a fairly well-known firm near our headquarters. They are a Registered Investment Adviser firm like us, and as such are required to treat each client equitably and put each client ahead of themselves. This particular firm grades clients by how much they make from them. If you earn them less than $7500 a year you are labelled a Bronze client, and as such they will only review your assets once a year. Keep in mind, if you hand them up to $750,000 to manage you are the bottom rung to them. Now if you are paying them over $22,000 a year, you are lucky enough to be a Platinum client. A platinum client will get 4 reviews a year. Ask yourself, does that sound appropriate. Oh, and it gets worse, as of this writing they have now created a new tier of Titanium which is $30k or more. This is actually spelled out, clear as day, in their brochure which is public information. Whether this is legal or not is a gray area, however it is clearly unethical. It is an obvious claim that you as a client are less valuable depending on how much they make from you. This is the exact reason commission-based business is a problem, your value is directly tied to how much they make from you.

Here is why this can be a real problem:

  • Let’s say you like working with them and you tell friends.
  • Those friends invest more and become higher tier clients than you.
  • They are now treated better than you, yet this firm would have never received those clients without you. Seems inappropriate right?

Every client should get your equal treatment if you take them on as a client. It is my belief, that if they were a truly ethical firm and they wish to operate this way, they should not take on any clients who earn them less than their top tier. We all know this isn’t going to happen, rather they will likely just change their brochure once they get a whiff of this article and their clients will never know if they are getting equitable treatment or not. Don’t get me started on the fact that they put roughly 50% of their clients assets in Mutual Funds and Annuities, I would love to know how they explain the fees and lockups as in your best interest. It should be no surprise that their performance has been far less than stellar. I have only one questions to ask from this:

Why would anyone ever work with a group like this?

In close, I want full disclosure for everyone, and I want every investor out there to be well informed. I want Equitable treatment for all clients. Read Investment Adviser brochures, look up the firm and individual at brokercheck.finra.org. Run from advisors with disclosures that show clear bad actors and run from firms that don’t disclose those bad actors or make it clear you are only as valuable as what they make from you at this moment in time. We are in the relationship business, long term is the outlook, grading clients by who they are now or how much you make from them now, fails to value who they will become and the relationships they will bring.

You deserve better, you deserve the highest ethics and a manager that is always there for you, that reviews your assets frequently, that keeps you informed and above all else treats you with value regardless of how much you invest.

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