It is important that you are aware of the 10 most frequent investment scams that are perpetrated on the public by licensed and unlicensed individuals. […]
No. But since I have your attention, “selling away” is one of the most pernicious and dangerous investment scams in the brokerage industry. It is outlawed by FINRA and all state security regulators, yet it persists. […]
Cognitive biases are beliefs that people form over their lifetime. These biases often impact our decisions. One such cognitive bias is known as the “authority” bias, where people tend to accept whatever a perceived authority figure says without question. […]
Imagine if you could go to Las Vegas and bet all of your net worth on one turn of the roulette wheel. A high risk bet? Not if you are a big Wall Street firm. If you win, you get to keep the money. If you lose, the government covers your losses. Based on recent history, this describes how too-big-to-die Wall Street firms conduct their businesses. Major financial institutions make huge bets – billions of dollars per transaction. If they win executives make eight figure bonuses and company stock prices go through the roof. If they lose, they are bailed by the government. Or, more accurately, they are bailed out by politicians who are paid large sums of money to protect these institutions. Government is another name for taxpayer money! See Mark Mensack’s article The Moral Hazard of Too Big to Jail.
Now, add another layer of complexity. What if the big bet, toxic mortgages, was a fraudulent activity. For example, a company sells shares in a toxic pool of mortgages, then bets against the performance of the pool, knowing the mortgages are junk. However, this fact is never disclosed to investors, who would use the information to avoid the product. And, to further hide the risk, the sellers purchase a AAA quality rating for the pool. This was outright fraud, but there are no consequences. The government uses our money to bail out the institutions, the companies pay nominal fines (small percentage of annual earnings) without admitting guilt, and none of the executives who made the decisions to defraud investors go to jail. In fact, most of the executives earned large bonuses, their reward for running successful investment scams.
Thousands of articles have been written about greedy Wall Street executives and their morally bankrupt counterparts in Washington. The U.S. is run by special interests and corrupt politicians who cater to companies that help them stay in power. There is no consumer/voter organization that cares enough to do anything about it. Most people feel totally disempowered by the extraordinary power of the special interests and politicians. There is an irony. Investors provide the assets that produce the revenues that Wall Street uses to protect its interests. Voters continue to elect corrupt politicians whose main interest is staying in office. […]
Advisors know you want the highest possible investment returns that are consistent with your tolerance for risk. If you are in your 30’s this could be an all equity portfolio of aggressive growth stocks. If you are retired your portfolio could consist of securities that produce the greatest amounts of income. Most advisors believe performance is the key to winning new clients.
On the other hand, financial advisors do not have track records. Only money managers have track records because they provide the same services to multiple clients. Advisor services vary by client so they do not have track records or at least they don’t have legitimate track records. So how do they market their services to investors who put a major emphasis on performance? […]