I want you to picture a furnace…

“I was selling JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm,”
– Geoffrey Tomes, ex-JPMorgan “financial advisor”

I want you to picture a furnace…broiling and roiling with steam and smoke, the air around it bending and wavy in a desert distortion from the heat.  That furnace is the hunger for profit at a typical Wall Street wirehouse brokerage firm.  Next I want you to picture a massive, self-replenishing mound of coal, spilling over in its abundance, unable to be depleted as more coal is continuously dumped on top.  That mound represents customer assets at the wirehouse and the continuous inbound flows of said customer assets.

Finally, I want you to picture a man wearing a leather apron and armed with a massive steel shovel.  That man continuously, and without hesitation or pause, is shoveling the coal into the firm’s furnace.  Without even looking up at how the last shovel-full has fared once having been tossed into the inferno, the man is already bent into his next thrust, lifting and launching a follow-up pile into the very same fire.

That man represents the brokerage salesforce at the wirehouse.  He is shoveling the coal (your money) as quickly as he can to satiate the firm’s need for short-term revenue gains into the furnace.  That’s his job no matter how white his smile or what set of caring questions he asks you.

This is not illegal, but you have the right to decide whether or not you want your retirement capital to be in that mound of coal, and treated as such by the leather-clad steam shoveler with the Series 7 license. Don’t get me wrong, the shovelers are nice guys, I know many of them and was one myself once upon a time.  They mean well but they are still chained to the furnace, it is how they earn their daily bread.

It is only once you understand this analogy that you can understand why Wall Street’s retail brokerage complex is what it is today.

Here’s DealBook’s latest “revelation” – which I’ve already detailed in my book Backstage Wall Street, but whatever:

But as the bank became one of the nation’s largest mutual fund managers, some current and former brokers say it emphasized its sales over clients’ needs.

These financial advisers say they were encouraged, at times, to favor JPMorgan’s own products even when competitors had better-performing or cheaper options. With one crucial offering, the bank exaggerated the returns of what it was selling in marketing materials, according to JPMorgan documents reviewed by The New York Times.

The benefit to JPMorgan is clear. The more money investors plow into the bank’s funds, the more fees it collects for managing them. The aggressive sales push has allowed JPMorgan to buck an industry trend. Amid the market volatility, ordinary investors are leaving stock funds in droves.

This will not change until a fiduciary standard is assigned to every relationship between retail advisor and retail client in the United States.  Until then, this hide-behind-suitability bullshit will continue.

To be clear, I am for the abolition of retail brokerage so long as it is conducted on a transactional commission basis.  Yes, I am an admitted ideologue and a radical on this particular topic, I’ve seen too much not to be.

If you think that’s an overly extreme stance, guess what – the FSA (the SEC of the UK) has already done it.

Backstage Wall Street on Amazon

 

 

 

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. https://eatverts.com commented on Sep 21

    … [Trackback]

    […] Read More on to that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]

  2. Landis online woman commented on Nov 09

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]

  3. PG SLOT commented on Nov 25

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]

  4. check us out commented on Nov 27

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]

  5. diamond art commented on Dec 29

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]

  6. additional info commented on Jan 05

    … [Trackback]

    […] Find More Information here to that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]

  7. Digital Transformation commented on Jan 16

    … [Trackback]

    […] Find More Information here on that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]

  8. JVC LT-32E488 manuals commented on Jan 22

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2012/07/03/i-want-you-to-picture-a-furnace/ […]