Only If The Price Is Right

Regulators and the general media have a way of vilifying people and products in a manner that strikes me as overly simplistic.

All too often, I see situations in which those charged with protecting the public interest take a “ready, shoot, aim” approach and promote that as upholding their mandate.

Well, years after the crisis that took down our global economy, we remain mired in a sea of captured regulators and compliant media. I maintain that to a large extent investors — and consumers as well — remain largely on their own in terms of meaningful investor education and protection.

This said, I will give more credit to those involved in investor protection at the state level.

I broach this topic today given a recent story written at fiduciary standard for older people.

The targeted firms are Bank of America Merrill Lynch, Charles Schwab & Co. Inc.,Commonwealth Financial Network, Fidelity Brokerage Services LLC, ING Financial Partners Inc.,Investors Capital Corp., LPL Financial LLC, Meyers Associates LP, MML Investor Services LLC, Morgan Stanley, Signator Investors Inc., TD Ameritrade Inc., UBS Securities LLC, Wells Fargo Advisors and WFG Investments Inc.

The complexity of some nontraditional investments is a big issue for regulators, said Terry Lister, chief regulatory officer with Waddell & Reed Financial Inc., which recently went through two senior-related sweeps initiated by state regulators.

A new wrinkle for regulators is finding out how well advisers themselves understand the complicated products that they are selling, he said.

“The regulators take the position that advisers don’t understand these products, so how can they explain them to a senior?” Mr. Lister said.

Nothing new here.

Those selling the products operate under the pressure applied by management to generate revenue. Customer needs and protection run a distant second to this overarching pursuit. All too often, “yield to salesman” — that is, the commission or payout — is more important than the “yield and/or return to the investor.

There are many lousy deals that come down the pike everyday. There are also plenty of excellent deals.

This story and situation remind me of what I often heard while working on Wall Street, that is, the products and deals are not necessarily bad in and of themselves, it is just the prices at which they are being sold. Those prices do not properly reflect the levels of risk and uncertainty.

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Written By: Larry Doyle